Exploring Ways Parents Can Help Their Kids Buy a Home



An article in aol.com points out that first-time–buyers are still a rare commodity in the real estate market. According to figures from the Census Bureau, rates for home ownership for those aged 35 or below are currently at a 22 year low.

It is possible things may improve as lenders begin to make it easier to obtain credit, but the fact remains that many people who wish to purchase their first home will still find it tough to do so, dues to a lack of liquidity and a lack of high enough credit scores to obtain financing. Not surprisingly some parents have been wondering how they can help their children get a foot on the housing ladder. Even though the concept is nothing new, the need for parental help has become more pressing over recent years.

© creative soul - Fotolia.com

© creative soul – Fotolia.com

According to figures from the National Association of Realtors, around 25% of firs-time-buyers used money gifted to them for a down payment last year. The monetary gifts most often came from their parents.  However this can carry tax implications. At the moment individuals can make tax-free gifts of up to $14,000 to another individual. This means it is possible for both parents to make a tax-free gift of $56,000 to a child and their spouse before having to report the gift to the IRS. Lenders also have all the knowledge required on how to accurately document these gifts, as they will need to see evidence that it is a gift rather than a loan that will need to be repaid at some point.

Parents can also co-sign on a mortgage, although this can expose them to a far higher level of risk than helping out with the down payment.  If the child goes on to miss a mortgage payment then it could jeopardize their parent’s credit ratings for years to come. Even if the child has the best of intentions, certain circumstances can be impossible to predict and could affect their ability to pay, in which case the full burden of the loan would fall on the co-signer.

Another option that may be less feasible is to purchase the property in cash, and around a third of all homes purchased in June were all-cash deals. From then on it is down to the parent as to how they proceed. Parents can choose to set up their own schedule of mortgage payments, but there are various things to consider with this choice. It is necessary to consult legal experts as there are federal guidelines about interest rates on this type of loan.