Real Estate Watch – Cynthia Elizondo
Helping Your Kids Buy A Home
A common theme I hear among Poway parents is the concern that their kids will never be able to afford to buy a home here. Although this is an exaggeration, it is a valid concern, as home prices have continued to increase, and salaries have not kept up.
With that in mind, many parents are considering options for how they can help their adult children in this big step. Luckily, there are many ways a parent can help, but financial resources, planning, and careful consideration of all factors are all necessary to make this a reality.
The first way to help your child purchase a home is to plan ahead. Teach your kids about the value of outstanding credit, and help them to achieve it. This can be done by adding them to your credit card as an authorized user early on. The longer they can show they have credit, the better their own scores will be. Further, if your credit is stellar, theirs will reflect it. You can also add your child to your savings account, which will show as additional reserves they can tap into to make a payment, should they lose their income. This needs to be done several months before applying for the loan, so planning ahead is critical.
A second way you can help is by assisting with the down payment. Although the magic 20% down is not required to get a loan, it does help by eliminating additional fees to the monthly payments, allowing the borrower to afford more home. For many loan options, a parent may gift a down payment to their child. Be aware, however, that you may be required to pay taxes on this gift, and you will probably have to sign a letter for the lender stating that this is not a loan, and does not need to be paid back.
Finally, you can be a co-borrower on the loan. This means you can be financially responsible for making the monthly mortgage payments, should your son or daughter fail to do so; however, unlike co-signing, you own part of the property, making this a much better option. If you have a reliable income, excellent credit, and additional assets, this option makes the loan approval far more likely.
Each of these tips can have serious repercussions, both positive and negative, so be sure to contact a financial advisor or accountant before making any large financial decisions. In addition, have a serious discussion with your kids, to make sure they understand and are ready for the financial burdens as well as joys of homeownership. When you have a plan in place, be sure to contact a Realtor to help with the search and negotiation. There is too much at stake to take any chances.
CalBRE #: 01924853
Halcyon Real Estate Services