Your adult child decided to buy a home and move out of your home or place they’ve been paying rent for. As a parent, you must be wondering how to help your child make it happen. In today’s economy, it has become quite normal for parents to assist their kids in their home purchase, whether by loaning money, buying property together, etc. However, what you should also have in mind is your future. It wouldn’t benefit you to deplete your savings and meet your golden years struggling. That’s why this quick and easy guide will give you some tips for helping your adult child buy their first home while staying financially secure.
First, check your finances to know what you’re working with. Decide whether this purchase will leave your finances unscratched or cause financial stress you certainly don’t need. You probably have financial goals and plans you wouldn’t wish to throw out the window just to help your child purchase a home. So, introduce your child to your current financial responsibilities and come up with a plan.
2. Gift the money
Gifting a deposit is one of the common ways of helping your adult child buy their first home. What you must have in mind is that once given the money, there’s no going back. That being said, make sure that giving money away to your child won’t impact your retirement plan negatively.
3. Cover some expenses or co-sign a mortgage loan
If your finances allow, you can offer to cover some of the costs, like paying the down payment. On the other hand, you can opt for a mortgage loan. By doing so, you become a guarantor in case your child fails to pay their duties on time. This is why it’s good to think this option through before you sign a loan and become a guarantor.
Sit with your child and come up with a payment plan you’ll stick to. Remember that this is both your and your child’s financial responsibility.
4. Sell a vacation home
Real estate is a common investing option that eases taxes and generates passive income. With that in mind, consider whether selling your vacation home to help your child buy a home is a good idea. If you wish to invest in another real estate in the future, discuss a possible joint investment in the future that will benefit you both in the long run.
5. Don’t overlook taxes
Taxes come knocking at your door once you become financially involved in your child’s home-buying process. Interest-free loans don’t release you from tax responsibilities since, in the system of the IRS, you count as someone who benefits from the interests. On the other hand, you lose the chance for deductions if you’re not on a mortgage. Furthermore, if your child gets into financial hiatus due to divorce, paying a mortgage by both parties becomes a burden.
This is just a fraction of what you’re supposed to know when you get a loan. So, better inquire about possible tax complications, possible deductions, and tax reliefs.
6. Help your child(ren) organize
Everyone buying a home for the first time is new to the entire procedure – including your child. That’s why it’s essential to include your adult child in the process. Don’t do the whole paperwork all by yourself! This is your kid’s responsibility, first and foremost. They have to know what they’re getting involved in and how to navigate through the home-buying stages. Also, they have to understand what financial responsibilities await them before and after buying a home.
7. Consult your financial and legal advisors
Financial and legal advice will help you decide which route to take. Should you become a guarantor for your child’s loan? Should you just gift the deposit and call it a day? How about joint ownership? A financial planner and legal expert will help you weigh all pros and cons and decide what’s best for you. As much as you want to help your child start a new, independent life, you have to ensure that any kind of financial help won’t put your finances at risk.
There are so many housing options on the market at different rates. For example, if your child plans to buy an apartment, the following factors roughly affect the final price:
- The building – is it older or new?
- Size of the apartment
- Current real estate prices
The last you need to happen is to make a home-buying decision you might regret later. This is why hiring a professional real estate broker is a life-saving solution. First, a reputable realtor will never let you buy a home without a previously conducted home inspection. Second, a top-rated realtor will always work in your best interest. What you must do is do a little research work in order to find a suitable realtor who will give you peace of mind.
Tips on how to make the transition easier
Your kid has bought their first home and is excited about the upcoming relocation. However, it’s worth noting that relocation from a house to an apartment is another time-consuming task that costs money. But there’s no need to worry because there are ways to make the transition easier. You can help your child search for a registered, 5-star-rated company. Next, you can offer to help with decluttering and packing before the movers come.
Buying a home, in general, is a process. However, with our tips for helping your adult child buy their first home, it will all come easier. Research is essential to a successful and stress-free home-buying outcome. Also, don’t forget to check whether you’re truly able to help your child financially without suffering ramifications. As previously mentioned, you don’t have to overstretch your finances in order to help your kid. If you do so, both of you may suffer financial burdens in the form of monthly loan payments, taxes, etc. So, you better have your finances in order and consult your advisor before making such a big financial move.
KW: helping your adult child buy their first home
META: Learn how to decide which financial route to take when helping your adult child buy their first home.