How Can You Support Your Grown Children’s Dream of Home Ownership?

As a parent, you want your children to succeed. To watch them grow, become independent and lead a rewarding life. One of the traditional milestones on this path has been to purchase a home. However, given the realities in today’s real estate market, that can be challenging. The market is flooded with people seeking to buy starter homes at a time when the starter home inventory is at its lowest point in decades. That leads to high prices – if you can even find one.

The day may come when your child finds a dream home but needs financial support to make the purchase. It can be tempting as a parent to step in when they ask for help, but should you? What are the risks for you and your son or daughter? Before jumping in to help them make a down payment or co-sign a loan, you need a solid plan for how and when you help. Consider the following to assess the situation.

See what’s available to them

The first step is to encourage your adult child to think through their long-term plans. How many years do they plan to stay in the home? Are the school system, house size, and location the right fit? The goal is to make sure they’re buying the home that makes sense for them and for the right reasons, not just because their peers are doing so right now. Buying real estate can be a good investment. It can help your child diversify their assets and be a solid wealth building strategy. But it must be done thoughtfully taking into account the appropriate personal and financial considerations.

After talking through their plans, encourage them to see if they can qualify for a home loan on their own. There are many programs and resources available to assist buyers, especially first-time homeowners. Depending on the state, region, type of house or government program available, they may not need your assistance. For instance, with the Mortgage Tax Credit program, first-time homebuyers can save up to $2,000 every year.

Consider all your options

Let’s say your adult child did the research, lined up all the assistance available, established a baseline price they can afford, and then approached you for assistance in buying their first home. Do you say yes? Before you do, realize there are many ways to help. One smart way is to agree to serve as their financial backstop. Rather than giving them a sizable chunk of money for the down payment, perhaps commit to helping out with unforeseen expenses that can arise as a homeowner – a replacement water heater or a new roof. Or agree to help them make payments if they get laid off, injured, or can’t handle their monthly payment for some reason.

Another good option is to help them pay down a current debt to free up money that can then be used toward their monthly mortgage payment. If your son or daughter is paying $500 a month on a car loan with a $10,000 balance, it may be better to pay off that loan rather than putting money toward the home. As a rule of thumb, buyers can afford an extra $1,000 worth of a home for every $6 of debt they eliminate. 

Take a team approach

If all of the above has been addressed and you’re leaning toward helping your child purchase their first home, bring the right professionals into the conversation. In addition to you and your child, engage your financial advisor, your accountant and an experienced loan officer. Your financial advisor can guide you as to which funds are the best to draw from so you can minimize the hit to your retirement income.

Your accountant provides an important perspective too. For instance, given your tax situation, you could choose asset-based lending, which allows you to access money without realizing a taxable capital gain at a time when it may not make the most sense. You can use as collateral non-retirement funds such as a brokerage account, a liquid money market savings account, even your own real estate. So you’re still able to help out your child but you’re not liquidating certain investment fund positions at the wrong time. That can be huge if you’re on a fixed income because you’re paying it back over a period of time rather than a lump some hit. Don’t sacrifice your long-term goals; be sure your assets continue to compound and grow. 

Talk to your bank

There are many ways to access the money you may need and First Financial Bank can help you work through the process. Unlike other lenders, your First Financial team takes a holistic approach. Our experts are willing to get involved throughout the process, long before the final close on the property. Our resources set you and your grown children up for success. We care about building a long-term relationship, not just completing a transaction. We’re proactive and focused on problem solving to help you get out in front of challenges and avoid potential mistakes.

At the end of the day, supporting grown children is the right thing to do. But how you do that is important as well. By considering all the options available and consulting with a trusted financial partner, you can find yourself set up for success for the whole family