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Should You Help Your Kids Buy a House

By Bill Gassett | February 28, 2020

Helping Children Purchase a Home

Should you help to buy one of your children a house? Is it really feasible to buy a kid a home outright? You might have been asking yourself these questions. Despite low-interest rates, many young people find it difficult to buy their first home. Monthly paychecks don't seem to have kept up with real estate prices and living costs.

Also, many are saddled with a tremendous amount of student loan debt. These are a few of the reasons many parents contemplate to buy children a home. Getting student loans paid off to buy a home is a goal of quite a few potential home buyers.

Unfortunately, it doesn't always happen as quickly as one would like. Your kids may have excellent credit and even gotten it verified by getting a credit report that shows they are in good standing. They have a solid job and have continued to pay their bills in a timely fashion, yet that student debt is preventing them from moving forward as they want.

This is where assistance from parents is often inevitable.

Of course, just like with anything else, there are upsides when it comes to buying children a house. Before you go ahead, putting down a home deposit and take on the "buy my kid a house challenge," you should consider the implications of what you are about to do. It is essential to understand the ramifications of helping your kid buy a home, both good and bad.

Keeping Up The Payments

One way to buy your child a home is to make a down payment and perhaps even sign the mortgage agreement. But what happens when your children can't keep up the mortgage payments? It would mean that you would not only have paid the down payment, but you would also have to keep up the mortgage payments.

Do you have enough retirement income to do so? As know from being an experienced homeowner, there is more to owning a house than just the downpayment and mortgage. You also have to keep up with repair bills and the costs to run the property.

Helping to buy your kid a home is both a financial decision and a moral decision. Many parents can't afford to help their children to pay ongoing bills, or take over the mortgage when the kids can't afford to pay it.

It is nice to help your children, but at the same time, you must be realistic about how far you can stretch yourself.

What About Loaning the Kids the Money?

Many parents think that loaning their kids the money is the right way to go. Sure, it is one way of solving the problem, but once again, you need to know there are downsides.

Should your kids lose their jobs, they may not have enough money to pay you back. What would you do in that kind of situation? Legally, the home your money helped to buy would still be theirs. But, and there is a big but, you would be the one out of pocket. Your child could go on living in the home for many years to come.

Yes, you could encourage them to sell the home, but what if they are in a negative equity situation? Once again, your bank balance would suffer. Timing is everything in real estate. If you get involved in a purchase during a downturn in the market, it could take years to recover.

On average, it takes at least five to six years for a home to go up in value when a correction takes place. If the home buying market wasn't great, to begin with, it might even take longer.

What About Just Gifting A Home To Your Child?

Well, that is another option. But, before you buy your child a home, you need to be aware that you may have to pay tax on the purchase. When you gift a home or make another significant capital purchase on their behalf, you will probably need to pay a gift tax.

Consult a financial advisor or lawyer to find out more about the policy on giving away major purchases to someone in your state. It could end up costing you more than you think.

I Have Three Children - What Should I Do?

Okay, what do you do if you have three children? It is easier to cause a family dispute than you may think. Your two first kids could be doing well for themselves and probably don't need your money. But, how would they feel if you helped your third child to buy their own home?

More than likely, there would be some family fallout as they would probably expect to receive some money from you as well. Are you going to help all of your kids to buy their homes? Can you afford to?

Ultimately, it is best to review your financial circumstances before you decide to buy children a home. Yes, it is tough to get the deposit together and then keep up the payments, but what about your own finances? Don't you want to enjoy your retirement?

For many parents, it is hard to buy children a house combined with doing what's best for their finances. These days it is not easy to get your foot on the property ladder, but it is just as hard to manage your retirement income. So before you decide to buy children a home, do your financial research very carefully.

Alternatives to Buying Your Kid a House

Every parent would like to help their kids if they can, but are there other alternatives? Yes, there sure are. While putting a twenty percent down payment is often the holy grail of home buying, it's not necessary anymore. There are tons of first-time buyer mortgage programs that allow first-timers to put down a relatively small down payment.

Did you know there are still no down payment loans available? If you are a veteran or live in a rural area, a VA loan or USDA mortgage are both excellent options. If you don't fit these criteria, you can still get a loan by going with an FHA mortgage for only 3.5% down.

So, instead of outright buying one of your children, you could provide some assistance coupled with them getting an attractive mortgage. Even if your child has low credit scores, they can still get a mortgage.

Part of the process should be working on improving your kid's credit. Start by getting a copy of their credit report and scores. Look these over for mistakes as they can have a dramatic impact on the scoring. The next step in the process could be to sign up for a company like Credit Karma or Credit Sesame. Both companies offer excellent tools to help put you on the right financial track.

Final Thoughts on Parents Buying Their Kid a Home

Contributing to the purchase of a home for a child is a noble decision, but it doesn't come without risk. If your kids have not shown fiscal responsibility in the past, you could be making a significant mistake. Make sure you get a commitment with a handshake and explain what a big step this is for both of you.

Other Helpful Realty Biz News Resources

Read these articles for reliable real estate advice:

  • Frequently asked questions from home buyers - when you are buying a home for the first time, it can certainly be complicated. You have nothing to fall back on from experience. It is no wonder buyers have tons of questions. See some of the most important ones to ask, along with getting the right answers.
  • Tips from going from renter to homeowner - becoming a homeowner for the first time is a significant step in one's life. See some trustworthy guidance on how to make it happen with minimal headaches.
  • Difference between buyer a fixer vs. rehab - do you know the difference between a property that needs a complete rehabilitation vs. one that is a fixer-upper? Find out with these helpful tips.

Use these additional articles to help make the best decisions when buying your next home.

Bill Gassett is an authority in the real estate industry with 38 years of experience. Bill is well respected for his informative articles for buyers, sellers, and fellow real estate agents to make sound decisions. His work has been featured on RIS Media, the National Association of Realtors, Inman News, Newsbreak, Credit Sesame, Realty Biz News, and his own authoritative resource, Maximum Real Estate Exposure. He has been on of the top RE/MAX agents in New England over the last two decades.
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