Helping Your Adult Children Become Homeowners

To help your adult child buy a home, start with an honest conversation. Ask if you need help and if you can afford it.

NEW YORK – High mortgage rates, inflation and an extremely expensive housing market have dashed the dreams of many would-be first-time homebuyers, leaving many parents wondering what they can do to help.

If you want to help a child get into the housing market, there are options available as long as you are financially stable and have a comfortably funded retirement savings plan.

Good news: Now could be a good time for newcomers to the housing market if interest rates start to fall this fall as expected.

But before you reach out, answer a few important questions: Should I help my kids financially? Will they really want me to help? How will contributing to a down payment affect my retirement savings? What rules might affect how much I should put toward my child’s first purchase?

You may be dreading having this family conversation, but it can be comforting for you and your adult child to have a plan. Here’s a guide on how to prepare.

Advance planning

Jeff Ostrowski, a real estate expert at Bankrate.com, urges parents to “prepare your children for homeownership long before they are adults and ready to buy.”

This means teaching and preaching the basics of budgeting, investing, and avoiding bad credit card debt while avoiding massive student loan debt that can suck money out of a housing fund.

With this in mind, help your children improve their credit score by adding them as authorized users on your credit card.

Gregg Murset, chief executive of Busykid.com, said children looking to buy a home should have a stable enough income to afford it, look at the different forms of financing available and not rely on their parents’ retirement fund as a saviour.

Gifts

Parents can give their child a lump sum to cover all or part of a down payment, said Nicole Lehman, a spokeswoman for Clever, a real estate data company. A single parent can give up to $18,000 per child per year, while a married couple can give up to $36,000 tax-free.

Parents can make a larger cash gift if they take advantage of the lifetime exemption from gift and estate taxes.

Finance the purchase

Become the bank of mom and dad and lend money to your child at a favorable interest rate. To avoid tax and mortgage complications, the loan must be formalized by a promissory note to avoid any misunderstanding about the repayment terms.

Another loan option: If the house needs updating, parents could lend money to pay for repairs after the sale closes, Ostrowski said.

Co-sign a loan

If your buyer has poor or bad credit, you can cosign on a loan. This can help get you approved for the loan and better terms. But be careful, Lehman said: If your child doesn’t make payments, his or her parents could be responsible.

Ready or Not?

Make sure your adult child is really ready to buy.

“I sometimes hear parents say they want to own more than their children,” Ostrowski said.

“If your adult child has a stable job, good credit and has saved for a down payment, you have my blessing to give them whatever amount they think makes sense to help them become a homeowner,” Ostrowski said.

However, he added, if your adult child hasn’t taken any of these steps, “that’s a sign that they’re not ready and you should bite your tongue and wait until they are.”