Are you a parent struggling with what to give your adult child for the holidays this year? If so, consider giving him or her the gift of homeownership. A gift that keeps on giving, homeownership has a multitude of financial and personal benefits.
The current market with its affordable prices and historically low interest rates couldn’t be more advantageous for parents looking to help their kids purchase a home. In addition to providing guidance and emotional support, there are several ways that parents can assist their children financially.
The most common form of financial support is providing an outright gift to be put toward a down payment. The benefit of this approach is that it is simple and tax free to the recipient. Many lenders require that a certain percentage of the down payment come from the actual homebuyer, and the gift amounts are also restricted by underwriting. Because of this, parents considering this type of gift should be sure to do their research first.
Other parents choose to provide a personal loan to their child as a mortgage alternative that has more affordable rates and greater flexibility in terms of repayment. However, this loan will be treated by lenders just like other debts and may impact the child’s ability to qualify for another loan.
Another option is to personally back a child by co-signing their mortgage loan. Co-signing can increase the child’s ability to qualify for a loan; however, parents must keep in mind that they are legally responsible if their child defaults on the loan for any reason.
However they choose to help, one thing is certain, parents who are in a position to assist their children in making a home purchase should take great pride and comfort knowing they are helping them secure a more stable future.