Helping Your Adult Child Buy a Home

It is part of the American dream to buy a home once you become an adult. Unfortunately, millennials are drowning in student loan debt and are facing a tough economy defined by bad job environments.

It is estimated that most parents are more than happy to help their children buy a home if they are capable. Obviously buying them a home free and clear would be ideal, however there are not many of us that can do something like that.

How Can I Help My Child Buy a Home?

• Pay the down payment as a gift
• Help cover expenses
• Provide a loan
• Buy the home yourself and rent-to-own
• Co-sign the mortgage

So, we must help in ways like co-signing, helping with a down payment, or by covering some of the expenses to help our children realize their dream of home ownership.

Wondering how you can help your child buy a home? Here are five ways to help your adult children purchase a house!

First, Can You Afford It?

This is going to be the first and most important thing that you need to ask yourself. Of course, we all want to help our children out no matter the cost, but you must look after yourself as well. The last thing you want to do is sacrifice your retirement savings to help your child buy a home in Las Vegas, or anywhere for that matter.

It would be unwise to put yourself in a position where you will struggle as you continue to age. If you don’t have another way to help your child financially, then you should say no.

A home purchase can be pushed back if need be but draining a retirement account that has taken most of your life to establish is not easily corrected.

5 Ways to Help Your Son or Daughter Buy a House - Explained

Cover the Down Payment

Covering the down payment is a common way in which parents help their children purchase a home. It is no surprise that this is one of the biggest hurdles for young adults to overcome. With the ever-increasing prices of homes raising the down payments to astronomical levels, it is a huge help when parents can help their children with their down payments.

It’s becoming more common for parents to help their child with a down payment. According to the National Association of Realtors, nearly 25% of people ages 22 to 30 received cash gifts to put toward their down payment.

The down payment on a conventional loan is 20%, which would put it at $40,000 for a $200,000 dollar loan. This is a huge hurdle for anybody, not just young adults, looking for their first home. Parents who choose to help cover their children’s down payment usually decide to do so by gifting it to them.

There are tax breaks associated with this, if this is the route you take. So, you will need to make sure you do it properly and keep all the paperwork.

Help Cover Some Expenses

Maybe throwing $40,000 at a down payment is completely unrealistic for you. Maybe you are nowhere near the point of being able to help them to that extent. That doesn’t mean that you can’t help them.

There are still plenty of things that you can do. Maybe you can pay half of your child’s rent and utilities to help them build up some savings. If their rent and utilities cost $2,000 a month and you paid half of them, that would allow them to save $24,000 in two years.

Another option would be to let them move back home with you. This may not be what you (or they) had in mind, but this would eliminate most if not all their expenses and allow them to save that much faster.

Provide a Loan

Another option for helping your adult child buy their first home is to provide them with a loan. This isn’t the most conventional way of doing things; however, the IRS does allow you to provide a home loan to your child, so long as you charge interest for a set term that’s allowable by their standards.

Buy the Home Yourself and Rent-to-Own

Depending on what stage of your life you’re at financially, you can consider purchasing the home or condo in Las Vegas (or elsewhere) yourself and renting it out to your child as a rent-to-own agreement. This is a good way to not give away all your retirement savings but still be able to help your child out.

This will allow for you to provide them with a home, but still have the value of the home in your portfolio, instead of giving a dollar amount away. This is an increasingly popular option.

Not only are some parents renting homes to their children, but some are also stashing the rent money back so their child can put it towards the first true home purchase of their own in the future.

Co-Sign the Mortgage

Maybe your child has saved up their money and can afford the down payment. They have a good stable job so they can afford the mortgage payment, and they are fully prepared to take on the loan. But they have a couple of bad marks on their credit that are keeping them from getting the loan.

This is another way that you can step in and help, you can co-sign the mortgage. This is essentially going to put your name on all the paperwork with theirs, meaning that if they ever default or have issues than it will come back on you.

This option should only be done if you have the utmost confidence in your child. You will need to be completely confident that they are able to make their mortgage, tax, and insurance payments on time every time.

Summary

Your child is one of the most important things in the world to you and you want to help them succeed. First, we discussed that you need to make sure you can afford helping them.

We covered the topic of paying the down payment if you can cover it, which not all people can do. There was the option of covering expenses for them to help them save, like paying some of their rent or utilities.

We looked at the option of buying the home yourself and renting it out to your child, and possibly saving that money back to help them buy a home later. And lastly the option of co-signing the mortgage, and all the risks that involves.

You will always help your child if possible. Consider the things we put on this list, think about which one best fits your situation, and discuss it with your child.  

Home Buying Resources

• Top 5 Reasons to Hire a Buyer’s Real Estate Agent
• Can My Kids Live With Me in a 55+ Community?
• Can Someone Under 55 Live in a 55+ Community?