Pay Dirt

I’ve Found a Trick to Buy My First House. But I’m Worried It’s Super Unethical.

I’m in a common position for millennials.

A house with a for sale sign out front.
Photo illustration by Slate. Photo by Getty Images Plus and Spoon Graphics.

Pay Dirt is Slate’s money advice column. Have a question? Send it to Athena and Elizabeth here(It’s anonymous!)

Dear Pay Dirt,

I have a question about the ethics of applying for first-time homebuyer assistance programs. I am in a fairly common position for millennials, in that my parents are upper middle class but my own income is much lower—right around the minimum livable wage in my city, in my mid-30s and eight years into my chosen career. (If this makes a difference in my question, my earning potential has been limited by severe ADHD and a medical condition that keeps me from being able to work long hours, which made many lucrative fields off-limits for me—I have tried freelancing on top of my full-time job, but my body rebels.)

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My apartment building is up for sale, and I’m looking at a 50% rent increase if I have to move out in the midst of the current housing craziness. To help me attain some financial stability, my parents have offered me a generous advance on my inheritance to use as a down payment. The issue that I’m running into is that, looking at the cheapest viable housing available in my area, the monthly payments after the down payment are still a bit out of my reach. Based on past sales it seems a few homes per year may come up in my price range, but there are no guarantees I’ll be able to snag one.

Given my income, I qualify for a few first-time homebuyer’s down payment/closing cost assistance programs for low-to-middle income buyers, which would help bring some of the lowest-priced properties into my price range. I’m just not sure whether it is acceptable for me to utilize them. On one hand, it feels very wrong to apply for down payment assistance when I am already receiving assistance from my family. However, I am well below the income limits even for the strictest programs and need extra assistance to make homeownership accessible to me. It’s not like I’m just treating this as free money while pocketing the extra.

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I don’t have any hesitations about accepting assistance directly from the bank I get my mortgage with, as I understand that is just a marketing incentive to use their bank, but what about programs through the city, or funded by for-profit companies but with limited funds available? Is it okay to apply (being fully transparent on the applications) and accept them if offered?

—Struggling Millenial

Dear Millenial,

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I believe in not making life harder than it has to be. That’s tricky for us with ADHD, myself included. I say apply to whatever programs you can and if you’re approved for a first-time homebuyer program, take advantage of it. You’re sharing that, even with the advance of your inheritance, you still might not be able to find a home you can afford because of the high COL area and your income. So, take advantage of any assistance your city may be willing to provide you to secure a stable living.

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I’m also advocating for you to take advantage of this program because, besides your mortgage payment, there are other costs associated with owning a home. There is maintenance on things that break, repairs that may have to be done, and property taxes. You may also have a monthly HOA fee you’re responsible for and those can be costly. Take advantage of whatever you can now so that you can be set up for financial success with or without parental support in the future. You’re not immoral for wanting someplace to live while being realistic with your career path. You just want a basic human right without having to worry.

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Dear Pay Dirt,

My partner and I are both retired, with me in my mid-60s and him quite a bit older. We own our 32-year-old condo townhouse outright but it really needs some upgrades.

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I would like to get a sum of cash through a reverse mortgage, perhaps $40,000, so that we can do some of the work this year, when our country’s government is offering a tax rebate for home renovations which will end on December 31.

He is reluctant because we’ll lose that money whenever we decide to sell. My argument is that upgrades will get a slightly high resale price if and when we sell or maybe make it easier to stay here longer (walk-in shower replacing the tub, for example). What do you think?

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—Reverse Mortgage Curious

Dear Curious,

I understand your partner’s hesitation in pursuing a reversed mortgage. You’ll have a lien on your home that needs to be paid off before you can walk away with a profit. However, an upgraded home does sell a lot faster and with higher bids than a fixer-upper. Homeowners do not want to remodel as much as they try to get you to believe on TV. A lot of people just don’t have time, want to live in an ongoing construction project, or have the extra funds laying around outside of mortgage costs.

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But if you are going to upgrade your home, upgrade the parts that actually matter. You’ll want to focus on your kitchen since it’s a huge selling point when buying a home. The bathrooms and flooring are also important in order to tie the house together. Other improvements you can make that may not be a priority now are fresh coats of paint, switching outdated light fixtures, and cleaning up your outside space.

You’re also onto something with wanting to stay in your home as long as possible. Other arrangements such as a senior living community can be costly and add up over time. So, if there is a way to make life easier, go for it. Most home accommodations—like railings—are easy to reverse if needed down the line. Take advantage of all rebates, sales, and offers you can find. Making your money stretch will limit how much money you’ll be taking with a reversed mortgage, which will help you hold on to equity when you sell.

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Dear Pay Dirt,

I could use some general advice about retirement planning and goals. I feel extremely panicked when I see online retirement calculators that say things like I will need $4 million to retire. I recently did a popular online retirement calculator (NerdWallet) and it said I will need this much! Is that true? How is that even possible?

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My background: I started college at 20 and it took me about six years to get everything complete as I was a part-time student/working throughout. Then I worked for the next several years in a scientific field adjacent to where I wanted to go, starting at $25,000 and getting up to $40,000. None of these jobs offered 401(k)s or anything like that. I went back to school and got my doctoral degree. No grad school loans, I was recruited to a great program where all tuition is paid and a small stipend provided, and I was able to work 10 hours a week in a lab for some extra money and experience. It took five years for the PhD.

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Where I am now: In the decade since my PhD, I’ve gone through a post-doctoral fellowship and then got a great job with a good salary and 401(k) with partial match, plus other things are available like IRAs! After 10 years with this company, I now make about $175,000 which is like a miracle (after state and federal taxes, insurance, retirement contributions, etc. I take home about half). I’ve been contributing as aggressively as I could for the past 10 years and have about $400,000 saved. This is a huge achievement for me. Also huge, I was able to get a small house in 2016 and I have a 20-year mortgage with a 2.9% rate that’s about $3,200/month with taxes and insurance (I live in a major, expensive city, and my “cheap” house was about $550k).

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But now I’m almost 50. No savings projection ever gets me to $4 million! I’m not expecting any big inheritances or anything and I feel very financially illiterate, we never had much money growing up and we definitely did not talk about money or financial planning. Now I support my mom financially—she gets her social security but that’s about it. What am I missing about other ways to save for retirement or things like long-term care? I feel like I tried to do the right things and will still be falling short. I don’t have kids or siblings so there will be no support coming from family and I’m really scared I will be old, alone, and penniless. Are the calculators just way off base?

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—Can’t Be the Only One

Dear Only One,

Having $400,000 saved for retirement is a huge accomplishment, for anyone. Don’t be hard on yourself for starting late or for not having what an online calculator suggests.

Retirement calculators aren’t always accurate. Not only do the results vary from company to company, but they also don’t always account for inflation, health issues, or additional benefits you may receive. For example, someone who will be receiving $3,000 a month from social security doesn’t necessarily need as much saved as someone who only receives $1,500. Retirement calculators also don’t account for your living costs, such as being mortgage free in less than 20 years.

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You’re already saving in a 401(k) and IRA so you’re doing great there. Once you turn 50, you can throw more money into these accounts with catch-up contributions to make up for the lost time when you were younger. If you have additional income to invest in, you can look into opening an online brokerage account through a financial institution like Fidelity. Look into a fee-based only financial planner to see about a one-time assessment to make sure you’re on the right track. And don’t forget to live a healthy lifestyle. Many health complications later in life can be avoided when you’re not living like Axel Rose from Guns N’ Roses. Good luck.

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Dear Pay Dirt,

My husband and I are trying to figure out how to be fair to our two sons regarding their inheritance. We each have one son from a previous marriage. We only have one asset which is our home. We were very fortunate to buy at exactly the right time and our home has doubled in price. My son and grandson moved in with us when we bought the home. He is 48 years old and my grandson is 30. He and my grandson pay half the mortgage every month. My son makes repairs around the house and yard. He and my grandson buy groceries, make car repairs, and help with utilities.

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My husband’s son, who is 30 years old, lives in another state with his girlfriend. They are buying their own home together with the help of her mother. My son and grandson love our little town and house. They want to stay here. They have limited resources and we live on social security so we are all able to survive together with our combined resources.

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Basically, the house will be left to the two sons. If my son and grandson are forced to sell the home to give my husband’s son his fair share they will most likely not be able to buy a new home as the new market will have priced them out. So, my husband’s son will have his own home and my son and grandson will be forced to sell and leave our home and no longer have a home of their own. They have invested heavily in this house and us. They will not have the means to buy their stepbrother out. We know there must be a way to do this fairly but we get emotional and lose perspective. We would love some advice on possible options.

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—There Must Be a Fair Way to Do This

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Dear Must Be A Fair Way,

This is a difficult situation and I can see why you’re struggling to figure out what’s right. You want to make sure one kid is taken care of while ensuring the other kid doesn’t feel like you’re punishing them for being successful in life. But in this situation, I would say leave the house to your son. Your son has not only helped pay half of your mortgage for years, but he has also contributed to the utilities, and the cost of repairs done to the property—not to mention has even fixed them himself.

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Talk to an estate attorney to create a trust that would allow your son to be left the home. If he chooses not to keep the home, and sell at a later time, set it up so that any proceeds from the house will be split between him and your stepson. This way if he chooses not to keep the family home, or can’t afford to, both sons are included.

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I would also think about how you plan to broach this conversation with your stepson. It might be helpful to talk it through with a therapist beforehand. In a lot of families, one child who isn’t as financially well off as another sibling will inherit more of the estate than the other one, which causes resentment. You want to be as levelheaded as possible so the conversation doesn’t get emotional ad if it does, you’ll be able to rein it back in before it gets out of hand. Try to make sure your conversation with your husband’s son is a healthy one that leaves both of you feeling at ease with the decision.

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—Athena

Classic Prudie

I’m fortunate enough that my family has always been upper-middle class, though I individually am not as I start a new job in a new state after finishing graduate school. Whenever I ask my parents for financial help, or when they offer it as a gift, they always give me more money than I asked for. I don’t want to seem ungrateful—I’m very grateful they can help me out of financial jams while I’m trying to get my feet under me. But it always makes me feel bad when they give me too much money.

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