As we approach the new year, it means the spring housing market is peeking just around the corner. Many forecast that the Spring of 2021 is going to be a great time to buy a new home, however, if your children aren’t able to make a down payment or find themselves needing some assistance, a little extra help from family could be an alternative option to support buying their first home. Many Millennials are striving to succeed, yet the current climate makes it tricky to buy a home. Student debt is compounding, and low job prospects are a reality, as we can all see in the current unemployment rate due to the pandemic. As a parent though, we know you do wish to provide support and indeed can help your children afford either a starter home, second home or a down payment through a multitude of ways. Helping your children buy a home they want doesn’t have to be seen as a loss though. In fact, it can be a financially wise investment on your part. We have compiled a list of ways parents can help children afford to buy a home:
1. Gift Fund
Family Gift Fund Programs are a great way to pay for the initial down payment of a home. Traditionally, 20% of the home’s value is expected initially so the new homeowners can avoid private mortgage insurance. However, scraping together this kind of cash can be tricky in such a short time. A family gift fund lets family members gift the money to pay for this part of the home expense.
2. Co-sign the Mortgage
If your children haven’t had the best credit score record or have a high debt to income ratio, having you as a co-signer for their mortgage can be a great way to ensure they get the home they want. Trust is very important in this relationship because the cosigner is putting their credit on the line and taking on a lot of responsibility.
3. Lend Directly to Them
If your children don’t want to go through a conventional loan as the interest rate is too high for their budget, you could consider giving a loan to your children and monitoring it yourselves. Unlike the family gift fund, this would be a real loan, as the gift fund does not need to be paid back. This loan would be like getting one from a bank but through a trusted family member.
4. Consider Splitting the Bill
Instead of paying for the whole house, you could consider paying for half of the house. Not only would you be helping your children afford the home they want, but you would now be acting as an investor and would be compensated when the house is sold. You could potentially make a profit while simultaneously lending a hand to your children.
5. Investment Property or Second Home
Similar to the last option, this path would entail buying the house for yourself and then allowing your children to rent from you, or even buy you out at some point. If your children want to move to a big city or someplace that has a desirable market, you could consider buying a home in the area and letting them pay you a pseudo-rent that helps pay off the mortgage. Later down the line, they can purchase the house from you since they have already contributed to its purchase, or you could place it on the market to potentially make a profit after your children have been more established.
We have a lot of options to support you and your family in the purchase of a home. Take some time today to reach out to one of our Financial Advisors. We can provide direction and new insights to guide the way.