Helping Your Adult Children Buy a Home: There is a lot of worry today about whether or not millennials will be able to afford to buy a home. While there are many factors and hurdles that contribute to this, when it is boiled down to the most basic issues, housing prices were substantially lower in the 1980s compared to today. Once you add mortgage stress tests, stricter lending guidelines, inflation, and higher debt to income ratios, many want-to-be homeowners may be looking for some assistance from the Bank of Mom and Dad to turn their real estate dreams into reality.
While providing your children with a monetary gift to put towards the purchase of a home is a great way to give your kids the boost they need to become homeowners, it is a significant financial decision and it is important to take everything into consideration before making any big withdrawals.
Can You Afford it?
Before handing over a large portion of your savings or making any big decisions, it is important to consider whether or not you can afford it. Yes - offering money towards a down payment seems like the best way to support your children when they are looking to buy a house, but the reality is that while we want to help, it needs to be within our means. Consider how this gift will affect you in your senior years when you are no longer working. You should be confident in your own financial future before handing over a large amount of money to anyone else.
Refinancing your home
Some people may look into refinancing and tapping into their home's equity as a way to help their children purchase their first home. Particularly in today's market where home prices have surged, this could be a viable option. However, you should consider rising interest rates and what this could end up costing you if you decide to use this option.
Downsizing
If you are thinking of downsizing yourself, making the move may free up some of your home's equity to pass on to your children to make their home buying experience a little easier. Moving from your single-family home into a condo or bungalow may absolve you of a mortgage payment altogether, and free up some money to pass down to the next generation.
Inviting Your Kids to Live at Home
If a large lump sum is out of the question, many parents are inviting their children to move back home in order for them to save money quickly to buy the home of their dreams. With the cost of living being so high and rent reaching unaffordable levels, saving is becoming more and more difficult. Clearing out their childhood bedrooms and allowing them a place to live at a much lower cost could be just the break they need to become successful in their goal of homeownership.
Buying a home is an exciting time for anyone, and helping your adult children to achieve such a milestone is heartwarming, to say the least. It is important to remember, however, that there are rules around gifting money towards a down payment. Check with your mortgage lender or broker for specific guidelines that need to be adhered to. Oftentimes, a declaration form may need to be signed that confirms the money is a true gift, and that there is no expectation of repayment in the future.
For help finding your next home, contact us today! We are happy to help you get started on your journey into homeownership.