Many young people find it hard to buy their first homes without any financial assistance. That's why first-time owners account for a tiny share of buyers today. According to the National Association of Realtors, only 29% of home sales went to first-time buyers in April. That's lower than the average of 35% a decade ago. In a bid to address this challenge, many parents help their adult kids financially. A recent report by Legal & General shows that parents supported the purchase of properties worth $317 billion across America in 2018. Further, while it's OK for parents to give their kids a leg up to buy a house, financial experts warn that they shouldn't jeopardize their financial security. Parents who help their kids financially risk putting themselves in shakier financial situations.
We don't want you or your loved one to join that list. So in today's post, we share ways to help your adult children buy homes without jeopardizing your finances.
Educate Your Kid on How to Buy a House
Before parting with any money, it's important to educate your children about money and homeownership. Experts warn that parents who throw money in their child's direction may be doing more harm than good.
For instance, while your child may be struggling to raise money for a down payment, they may ignore other costs such as utility payments, repairs, and maintenance. Talk to them about these expenses. It'll help them see the importance of keeping mortgages at less than 30% of their income.
Buy the Property and Let Your Kid Rent
If your adult child can't get a mortgage, you can buy a home in your name and rent it out. Of course, this will only work if you can afford it.
Buying a second home also comes with some perks. For instance, property taxes, structural improvements, maintenance, and mortgage interest are typically deductible on a second home. But there is a catch.
Your adult child must pay the rent for you to qualify and enjoy these tax deductions. So make sure he/she can keep up with the payments because, if they don't, you'll get none of these perks.
Buy the House and Co-Own It
Another strategy is to buy a property and co-own with your kid. Here, you will be buying the home and sharing the equity. When the house gets sold, you will get your share.
This is a great arrangement if you intend to sell the house to your child eventually. But if you take a mortgage, you may not easily find lenders interested in shared ownership. If your kid can't pay, you may end up having more bills to settle. Solution?
Define Your Role
It's wise to determine your level of involvement before helping your kid buy a house and co-owning it. Who will take part in the search process? Who has the final approval? Lastly, who negotiates and writes the final offer? The last thing you want is to ruin the relationship with your kid when trying to help out. Sit down and discuss these concerns.
Make Sure Your Kid Can Pay
Apart from who gets to do what, homeownership costs are a major concern when co-owning property with your child. You don't want to put yourself in a situation where you will be meeting costs like mortgage, renovations, utilities, and maintenance.
Make sure your child can cover these expenses. Let them show you they have a steady source of income before buying the house.
Let Your Kid Rent That Spare Bedroom
If you don't have enough money to give your child, consider having them rent your spare bedroom. Every month, let them make payment. You can keep this money until they have saved enough to make a down payment. Sometimes, what kids need is just a little push.
Help Your Adult Children Buy a House
Helping your kid buy a home is great. But if you're not careful, it can adversely affect your finances. Whether you have money or not, don't sabotage your retirement. Good luck!