Rising interest rates and ongoing high housing prices are driving more people to tap the family bank for help buying a home.
First-time homebuyers often are saddled with student loan debt and don’t have the savings for a downpayment or the financial track record to qualify for a mortgage. So they turn to the “bank of mom and dad.”
Almost one quarter of homebuyers ages 22 to 30 said they received cash gifts from family and friends for a downpayment, and another 5 percent got loans from relatives or friends, according to the National Association of Realtors.
You asked us how a parent can best help their child get into a home in responding to our recent survey. Whether it is gifting money, buying them a home or helping with the mortgage, here’s what you should know before you reach into your pocket.
— You can advise and help steer your child away from unsuitable homes or predatory lenders.
— You can help your child start earlier to accumulate wealth by owning a home.
— You and your spouse can each give up to $16,000 tax-free to your child in 2022 under the IRS gift tax exclusion.
— Co-owning the home can help you and your child accumulate wealth. You also might want to buy a home as an investment and rent it to them at a reasonable rate. Check with your tax advisor about your responsibilities.
— Giving large sums of money can dramatically change the family dynamic, especially if you have more than one child. Consider giving each child something worth an equivalent amount to keep the peace. Also consider whether you are making your child too dependent on you or guiding them toward self-sufficiency.
— Think hard and honestly before you finance their mortgage. You know your child best. Will they be able to pay you back?
— Co-signing can help your child get a mortgage loan, but if they fall behind on their payments, your credit rating could be damaged.
— You should not compromise your ability to pay your own bills.