Real Estate Tips and Trends… Should Parents Help Children Buy a Home?
According to the National Association of Realtors, first-time buyers accounted for only 29% of existing home sales in April, lower than the average of 35% in 2008. Although it has always been difficult for young people to put aside money for a down payment, it has become harder in recent years because of mounting student debt and a sluggishly recovering job market.
Before stepping in with a loan or gift to help with a down payment, parents need to ask themselves two important questions:
- What will helping my child cost me?
- Is this even the right time for my child to buy a home?
These tough questions may require the help of a financial expert. One rule of thumb, however, is never to part with more than you can afford – meaning not just making sure you can still meet your own current needs, but also taking into account what you’ll need to ensure a comfortable retirement.
Aside from legal and tax implications there are non-financial issues to consider as well. Even if parents are able to afford to help, it may not be a good idea to jump in. Parents need to think where the child is in his /her professional and personal life. For example, if they are at a point when they might move in the next year or two, it’s likely it won’t be enough time for a property’s value to grow enough to recoup the closing costs at purchase, plus regular payments for insurance, taxes, and the real estate commission when the house is sold. And, of course, there always looms the possibility that the child might lose or quick his/her job, resulting in a dreadful situation for all.
Bottom-line: Think long and hard. Becoming your child’s lender can be financially beneficial, but it’s also fraught with risk, perhaps more so than the typical investment because a family relationship is involved.
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