How will helping my parents affect my credit score?

Question

Hi credit experts! First of all, thank you for taking the time to read my post. It means a lot. Here is my situation: My father is retiring at the end of August and my parents are planning to move up closer to me (about three hours away from where they're currently located). They already sold their house, and their closing date is 8/13. We approached a realtor to start looking for a house by me, but wanted to get pre-approved first. I had recommended an FHA loan to them because of their poor credit score (on credit karma my father has 585 and 593 and my moms is 638 and 601). The mortgage broker said that wouldn't be a problem due to their high down payment ($120,000), but they would need to have income in their new location coming in before they get pre-approved for the mortgage. As I mentioned previously, my dad retires at the end of August and will be receiving social security and his pension, however that will not be coming in until at least November. My mom is going to work up until she moves, and then get a job once she gets up to her new home. Therefore, they have no "current" income to report to be approved for their mortgage (because they need to be out by the end of September and my dad's first check won't come until November and my mom needs 30 days minimum of paystubs and even if she gets a job tomorrow, she will not have enough time before they need to move out). I talked to the realtor and she put me in touch with another mortgage broker who offered us the following option: - Purchase the home under MY name (fairly good credit, score of 750), and use their $120,000 as a down payment "gifted" to me. Then, when they move up here and my mom starts working and my dad gets his social security checks, have them re-finance the house and put it back in only their names. My question to you all is - how will this affect MY credit? Assuming they make all their payments on time (which they will). My main concern is that my fiance and I are planning on buying a home of our own within the next 2 years. I am worried this will affect my ability to get a mortgage for myself when the time comes. I would love to help out my parents, but I need to make sure it isn't going to ruin my future first. My main concern is taking care of my credit so that I'm NOT in the boat that they are in now. Any insight would be fabulous! The mortgage broker who suggested it to me said it won't affect my credit at all, but I want to get a couple other opinions before I committ. Thank you again! 

Answer 1

I would not do what you are proposing - or more accurately what the mortgage broker and Realtor are proposing. What is the price range your parents are planning for their next purchase? Have you found a house or are you just researching at the moment? This is July 2015. Your parents will have income as soon as they move and your Mother gets a job and your Father's SS starts coming in Nov 2015.You are really only talking about 5 or 6 months gap here. A short term rental is a terrific way to fill the gap. There are a number of ways to handle this without involving you and your credit. If the LTV is low enough with the $120k down payment, your parents can get a bank statement type loan.They can rent a place for six months or so beginning now until your Mother's job starts and your Father's SS starts and then purchase. This gives your parents ample time to settle in the area, scout for a new home and get the right place.Or, if you have found a place, consider offering the seller an installment type purchase. $X down (not the $120k, a much small amount) $Y in rent/monthly payments and a close date in Dec 2015.  There are sellers that will do that, but certainly it limits the inventory.There are risks involved from a tax POV if your parents gift you the $120k this year. Talk with a CPA. It is not wise for either of you to do this large gift - it is over the allowed annual limit and there is a gift tax. Get professional tax advice from a CPA so you have the most accurate info.