PARENTS TO THE RESCUE OFFSPRING TURN TO THEM FOR FINANCIAL HELP IN BUYING FIRST HOMES, BUT THERE ARE PITFALLS.

Byline: Evan Pondel Staff Writer

Ryan Sanden was ready to move out of his parents' home, but he didn't want to pay rent - something he considered a waste of money.

Still in his early 20s, Sanden hadn't saved enough yet to make a down payment on the small condo he was eyeing in Long Beach. So like many people his age, he approached his parents.

Sanden's parents agreed to help. But they added one condition, which financial experts say some parents are now tacking on to down payment gifts: He would have to pay them back.

``I'm lucky my parents were willing to help me out. Now I've got a mortgage instead of having to pay rent on an apartment,'' said Sanden, now 23, a crane operator who ended up buying the Long Beach condo for about $200,000 two years ago.

A soaring real estate market is forcing many first-time home buyers to ask mom and dad for help. But the challenge is setting up financial arrangements that help first-time home buyers without relying too heavily on their parents' bank account.

That begins with parents and their kids understanding each other's objective, according to Mike Fitzhugh, a principal at Kochis Fitz, a wealth management company in San Francisco.

For the parent, it's determining whether or not they can afford to help.

``If they're helping and they can't afford to, then they're not doing anyone a favor,'' said Fitzhugh, who consults with at least one parent a week about helping their kid buy a home. ``We then ask the parent whether they really want a return on their investment. Overwhelmingly, it's no.''

In most cases, parents simply want to help because they can. They are also enabling their kids to establish an investment that will hopefully accrue in value the rest of their lives.

``We were in a position to help Ryan out, and that felt good. I feel bad for kids who have to face this market on their own,'' said Greg Sanden, owner of Oversize Transfer & Trucking in Long Beach.

While Sanden felt it was Ryan's responsibility to pay him back, he did not charge his son interest. Fortunately, Ryan made a tidy profit on his condo, which he sold recently, and was able to repay his parents.

But don't assume the robust real estate market will endure and ensure lucrative returns in the future. Financial advisers say overestimating what a home could be worth in 10 years as opposed to focusing on its value today could be setting yourself up for disaster.

``And helping your kid out shouldn't mean putting your financial circumstances in the line of fire,'' Fitzhugh said.

That's a possibility if a parent is a cosigner on a home and their child's credit runs amok. ``The parent's credit could suffer so it's imperative that the parent has some sobering reflection as to whether their kid is going to be at risk for their credit,'' Fitzhugh said.

Doug Perry, a senior vice president at Countrywide Home Loans in Calabasas, acknowledges that many of these decisions are based on a family's financial situation. But there are instances when cosigning makes sense, especially if a child needs the leverage of their parent's financial standing.

The Federal Trade Commission recommends the following should a family opt to cosign:

-- Ask a lender to calculate the amount of money you might owe. You may be able to negotiate the specific terms of your obligation.

-- Ask the lender to agree, in writing, to notify you if your kids have missed a payment.

-- Before you pledge property to secure the loan, such as your home, car or furniture, make sure you understand the consequences. If your children default, you could lose these items.

If cosigning isn't an option, Michael Long, a senior loan officer at First Financial Mortgage in Studio City, recommends that parents supply the down payment. He said that supplying a down payment eliminates any fear of potential credit woes in the future, and the child benefits from the responsibility of having a mortgage in their name.

A down payment can be supplied in the form of a gift, but the recipient should be aware of tax consequences and consult an accountant for advice. Banks also have different guidelines for what they might require when transferring funds.

That's also true when securing a loan. Most banks usually ask for three to four different credit lines before they sign off on a loan. However, there's always some wiggle room if a parent intends to make a significant down payment, Long said.

Perry, at Countrywide Home Loans, is accustomed to helping parents secure loans for their children. While there are myriad options to consider, ``parents should have a rough idea as to how they want to help,'' said Perry, who also mentioned that parents occasionally loan the equity of their home to their children.

Some parents also sell properties they own to their children. Ginger James, a real estate broker at Re/Max in Calabasas, said her son Cody purchased his fiance's parents' condo after he secured 100 percent financing, which allowed the in-laws to make a profit without gouging their new son.

The question is where do parents and their kids go if there are no real estate prospects on the horizon. Yolanda Maldonado, real estate broker with Century 21 in Claremont, said the Internet is good place to start.

``It helps with the shock a lot of parents go through when I first take them out,'' said Maldonado, who also rattled off several other costs parents and children usually find shocking. The include: property taxes, homeowners insurance, additional liability coverage and homeowner or condo association dues.

Ryan Sanden still recalls when these terms became a part of his daily vocabulary. Luckily for him, he recently paid his parents back by selling his condo for almost double the purchase price. He then bought a two-bedroom home for about $530,000, which closed escrow several weeks ago.

Evan Pondel, [phone]

evan.pondel(at)dailynews.com

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Photo:

(color) Greg and Jeanie Sanden helped son Ryan buy a condo two years ago. Since then, he has repaid them from the condo's sale and has bought a house.

Brittany Murray/Staff Photographer