From generation to generation, parents have often helped their offspring buy a home and achieve the American dream. Finally, many millennials can use a hand in the current economic environment, which is characterized by a tough work environment and heaps of student loans. According to a recent study by loandDepot, 17% of parents with children between the ages of 18 and 35 want to buy a home in the next five years. That’s up more than 13% in the last five years. Buying a home for your adult child would be the ultimate gift, many families can’t afford it. But that doesn’t mean they can’t help their child buy a home. From picking up the down payment to co-signing the mortgage, here’s a look at five ways parents can’t help their kids realize the goal of homeownership. (Read more here: A quick guide to buying a home for your child .)
Make sure you can afford it
Before you can make an informed decision about how to help your child or children buy a home, you first need to make sure you can afford it. The last thing anyone should do is sacrifice their retirement assets to help their child buy a home. If there is no extra money available for this purpose or if you are accessing retirement accounts to help, you should say no and find another way to help your child find home ownership. Finally, homeownership can be delayed, but having a retirement shortfall is not something that is easily fixed. (Read more here: How to protect retirement and help adult children .)
Cover the down payment
One of the most common ways parents help their children buy a home is by covering the down payment. With most conventional mortgages requiring a 20% down payment, coming up with the $40, 000, on a $200, 000 home purchase can be tough for all types of home buyers, which is why parents often look into. LoanDepot found in its recent survey that half of respondents would like to help by covering part of the down payment with 8% willing to pay 90% or more of. Parents who go this route often prefer to gift the money to their child for tax purposes to receive a tax break. You have to prove it’s a gift, so make sure it’s a real gift and stick to the proper documentation. (Read more, here: What are gift taxes? )
Help them save by covering expenses
Having $50, 000 may seem like a pipe dream, but if parents help their children with other expenses, the savings allocated to buying a home can quickly add up. Let’s say your child wants to buy a house, and rent and utilities at their current residence cost $2, 000 per month.If you agree to cover half of that for two years, that’s $24.000 saved. You can also eliminate rent altogether by allowing them to return home. Sure it’s an adjustment for everyone to live under one roof again, but this reduces your child’s expenses by freeing up more money that can be saved to buy a home. (Read more, here: Homeownership: a win-win situation .)
Buy the house and rent it out
Becoming a landlord may not have been in the plans, but it can be, a viable way to help your child while not parting with the money you need for retirement. Many parents choose to buy homes for their children and then have them rent to help them. In some cases, they collect that rent and stash it away for their child to eventually use to buy the house.
Cosign the mortgage
For some homebuyers, it’s not the down payment that keeps them from buying a home, it’s their shady credit history. If your kid can afford the house, he’s saved money for the down payment but had some credit hits along the way that hurt his chances of getting approved for a mortgage. In this case, you can help by co-signing your child’s mortgage with. This option should only be done if you have the utmost confidence that your child will make the monthly mortgage payments as well as taxes and homeowners insurance. If your child can’t swing it or isn’t responsible and takes the loan by default, you’re up for it.
The Bottom Line
Buying a home should be affordable for everyone, but that’s no longer the case thanks to high down payments and tight lending standards. For parents who can swing it, there are numerous ways to help your child own a home. Covering the down payment, helping them increase their savings rate, buying and renting a home, and helping secure the mortgage are all possible ways for parents to afford a home purchase if they can afford it without financial strain.