Image courtesy of Flickr, Jeff Kramer
Here are 8 ways parents can help their adult children buy a home.
Helping an adult child buy a home is something that has become more common for parents in recent years. With rental costs increasing in most major cities in the U.S. more millennials are looking to buy a home's instead, so it is only natural to ask parents for a little help.
Here are 8 ways on how parents can help their child buy a home.
1. Give a Gift: Instead of lending money to your child, why not give it to them as ''a gift.'' The Freddie Mac Home Possible Advantage program makes it possible for first time homebuyers to use money to buy their home with gifted funds. This program makes it possible to buy a home for those who have limited savings requiring only 3% down. With this program your child doesn't even needs to have reserves.
Tip: : Aside from getting gift funds from family and possibly friends, you can also get grants to help you buy a home.
2. Help Them Get Their Finances in Order: If your child has mentioned to you that they would like to buy a home then this would be a great opportunity to review their finances with them and teach them a few lessons you have learned in order to be sure they are setting themselves up for success. Ask your child questions like, what financial goals they have set for themselves? What is their current financial situation? Do they have an emergency plan? Questions like these will prompt your child to start thinking and organizing their finances before they buy a home.
Tip: One way to help your child get their finances in order is to have them speak with your financial planner or accountant if you don't have a financial planner. It's never too early to start planning for the future.
3. Have Your Child Review Their Credit Report: Lenders use credit reports and scores to determine if you qualify for a loan and assess the risk of the borrower. Have your child check their credit report to avoid and correct any issues beforehand. If there are errors on the credit report, make sure to fix them by calling the appropriate credit bureau before applying for a mortgage loan so you can get the best rate.
Tip: Pull your credit report for free and if you need to improve your credit then here is how to do it (10 Hacks to Improve your Credit Score).
4. Help with Closing Costs: Aside from coming up with a down payment, a buyer also has to come up with a certain amount of money to pay the closing costs. Sometimes people don't know that you have to pay for services upfront such as the appraisal and home inspection when purchasing a home, these out of pocket costs can be as high as $1,000, if not more. Paying for the fees required up front is another way you can help you adult child by a home.
Tip: : Calculate the closing costs here to know how much you need to pay.
5. Have Them Live at Home: Another great way to help your child buy a home is to have them move back home with you so they can save money for the down payment. The money they would spend every month on rent and utilities could be saved in an account for their down payment. This would also be a great opportunity to build and/or repair their credit as well.
Tip: If your child is moving back home. It is best to have a conversation about their expectations of living together again. Remember they are now adults, so there needs to be clear expectations on both sides about rules and how much money will be saved.
6. Determine How Much Your Child Can Afford: Knowing how much home you can afford will give you a great perspective on how much you need to come up with for a down payment. It will also help to narrow the search on homes for sale that are in line with affordability, rather than wasting time looking at homes outside of the budget.
Tip:> To help your child start thinking about how much they can afford, ask questions like: How much in monthly payments can you afford every month? What are your monthly expenses? How much are you putting as a down payment? Once they figure this out, they may realize they are ready or need to wait a little longer before buying a home.
7. Pay Their Student Loans: With so much student debt nationally, one of the best ways to help your children is to pay their student debt so they can focus on saving for their home. With student debt responsibilities taken care of, they will be thanking you forever; at least we hope they do.
Tip:> If you're paying their student loans, make sure goals have been set as to how much your child needs to save to buy a home. You don't want to pay all their students loans only to find out that they have not saved a penny.
8. Become Their Co-Signer: If your child cannot apply for a mortgage loan on their own but you still want to help them buy a home while establishing their credit, then become a co-signer. Co-signing for the loan is another way to help them get approved. Later on, when they are qualified to get a loan under their own name you can remove yourself from the obligation by refinancing.
Tip: Before co-signing for a mortgage with your child, talk to a mortgage professional to cover any questions you may have, such as when and how you will be able to get yourself off of the mortgage in the future.
Whether you're going to give your child money for a down payment or co-sign with them, there are several ways you and your child can agree on to buy a home. If you are ready to compare rates check out what this lenders have to offer. Compare hundreds of loans at once here.
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