We’re all well aware that houses in the United States-particularly in popular cities come at a pretty penny. It’s also becoming fairly common for parents to help their kids buy property, even if it is a bit awkward to discuss.
It’s tough for young people to buy their first home without some assistance from mum and dad. If your child is asking for help, here’s what you need to know to avoid any problems in the family.
Helping Out Is More Common Than You Think
Recent studies reveal that many first-time buyers now get some financial help from their parents, while decades ago, this kind of assistance was much less common.
For many first-home buyers, the only way to get into the housing market is with big financial help from family. It’s very tough for young people because of rising prices, high interest rates, and tight borrowing rules. Reports say years are required to save for a 20% down payment for a house by young couples, especially in competitive markets such as New York or Los Angeles.
When your child tells you that prices are only going up and they need to act fast, you’ll need to decide quickly whether you’re going to help them or not.
Should You Support Your Child With Money?
Money changes everything. Money changes relationships. You might be gun-shy about lending money to a friend, and helping your kids isn’t all that different. And things can get even more complicated when partners or banks are involved.
There’s no way to completely avoid a mess, but you can prevent some of the problems by being upfront from the get-go about what everyone can expect.
First, ask yourself if you can afford to help. There’s always the risk the money won’t come back. Even if your child means well, life is full of curveballs like losing a job, sickness, or worse.
If you can’t afford to give money or go guarantor, say no. If you’re a guarantor you’re legally liable for the loan if your child can’t pay it back.
Head Off Problems Later: Talk Now
Owe no mortgage, have retirement funds in place, and want to help? That’s great. But misperceptions can still arise. So, have frank discussions now.
Is It a Loan or a Gift?
Here’s the million-dollar question. Each has its positives and negatives.
A gift is simple: You give the money, your child buys a house, and that’s it. But you lose control over what happens next. What if your child sells the house and invests in something risky? Or what if they break up with their partner, and the partner wants half of the property you helped pay for?
A loan is more complicated but can protect your child in some situations. For example, if they split up with their partner, a loan might limit how much of the house their ex can claim.
If you’re still working, lending or gifting the money is often okay. But if you’re retired or close to taking Social Security benefits, consider how it may impact your eligibility.
Also, keep in mind that you could be subject to Capital Gains Tax if you co-finance a house and sell later.
What About Your Other Kids?
If you have more than one child, consider how helping one may impact the others. Sibling rivalry is certainly a valid concern, particularly if they perceive you as playing favorites.
Be transparent about why you’re helping this child now, and what the rest may look forward to in due time. Perhaps you can reassure them of similar support at a later time when the need arises. Open communication will go a long way in keeping everyone content.
In the end, just as you used to settle those arguments over who got the front seat in the car, you’ll have to make sure everyone is being treated fairly. That’s how you keep peace in the family.
Consult the Professionals
If you are not sure how you can best support your child or if you want to make sure everything is handled correctly, consider seeking advice from professionals. For example, property managers from TrustHome Properties or Pioneer Enterprises, and real estate agents are a great insight into the current housing market and will help determine what fits within your child’s budget. They will also guide you with the paperwork and the various legal considerations involved, making the process seamless for everyone.
A little expert advice goes a long way in ensuring that your support benefits your child rather than causes undue stress.
