Want to Help Your Child Buy a Home?

Todd_vertical-1What is the “American Dream”? For many, it’s owning a home. With the economy continuing to recover, rents on the rise and interest rates low, the idea of purchasing a home right now is starting to make financial sense. Yet for many millennials the move from renting to owning is a daunting task.
Many millennials today have high levels of student loan debt and large rent payments. These restrictions tied with stricter lending requirements can make it challenging to qualify for a mortgage. Today, this demographic is turning to their parents more and more for help with the purchase of a home, or down payment assistance. While it’s only natural to do anything you can to help your child, here are a few things to consider before you assist them in purchasing a home:
1. Look at Your Own Finances. Don’t jeopardize your own financial wellbeing, or future wellbeing, by offering financial support to your child. Determine the amount you can comfortably contribute, and if your support will be a one-time or even monthly or annual financial sum.
2. Assess Your Child. It’s likely that no one knows your child better than you. Is your child ready to be a homeowner? Do they have a steady job, good money management skills and will they most likely stay rooted in a new home for at least five years? A history of poor debt management should throw up a red flag in your mind. Beyond putting yourself in financial difficulty if your child can’t support the finances of a new home, you don’t want to put your child in that position.
3. Know Your Options. There are three common ways for parents to support their children with the purchase of a home:
• Gift the down payment. Each parent can give up to $14,000 per year to a child without triggering a gift tax. Talk with your financial or tax advisor before gifting funds to ensure you understand the tax implications.
• Buy Together. In this case, both parents and children would be on the deed for the property, and the home loan. You can choose if your child is fully responsible for making monthly payments, or if you will share in the payments. But remember, if your child falls behind on the payments you will be responsible and liable.
• Rent to Own. You can purchase a home, and then set up a rental arrangement with your child. This includes setting up a rent to own arrangement where rental payments go toward payment for the home. At a later date the child can take out a mortgage to pay off your remaining responsibility on the home. At that time, you can also gift a portion of the home to your child.
Knowledge is power. The more you know about how to safely enter into a financial support role for your child’s home buying process, the more secure and beneficial the experience will be.

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