Many people I know are buying or have bought their first houses with help from their relatives. It’s great that parents and grandparents are able to help the new buyers out with getting their feet in the door that leads to a great wealth-building opportunity. There are, of course, some issues to consider if you are thinking about taking this path, and Penelope Wang of Money Magazine lays them out on the table.
These are her guidelines for the parents:
- Your own security comes first. Don’t sacrifice a high percentage of your savings.
- Don’t confuse giving with investing. You’re doing this out of the goodness of your heart, not because you’re expecting a return on your investment.
- Sometimes it’s better not to give. If the kid isn’t financially responsible, let him learn discipline by saving and investing on his own first.
If you’ve considered these points and still want to help the buyer out financially, also consider these options:
- Let them live at home. This is common. Kids can live at home with their parents, saving money, until they’ve accumulated enough to buy a house.
- Help them with the down payment. There are some tax rules that you will have to consider, like the $11,000 annual gift exemption. Make sure you check with a tax accountant.
- Cosign a mortgage. This puts you on the hook if the buyers stop paying the mortgage.
- Buy their house. This is the quickest way to make sure the buyers aren’t priced out of an increasing market, but the value of the home is deducted from the $1,000,000 lifetime gift limit.
I am planning my life with the expectation that I will not receive any assistance from family when it is time to purchase a house. My parents are not likely to be in a position to help me out.
Subscribe
8:39 pm (reply)
I’ll probably be getting some surprise help from my parents with a down payment. My grandparents helped them in the same manner so they want to return the favor. We’ll be able to move into a 2nd house (we are already in a house) in the city sooner than we’d have otherwise been able to. No strings attached and in this case it really is true. It’s weird that you posted this today as I just found out about this help I’m getting yesterday.
3:14 am (reply)
That’s excellent, Mr. Wolf. Like your grandparents and your parents, it’ll be your turn to “pay it forward” when your twins are looking to buy their first houses in 15 to 25 years or so… :>
6:39 pm (reply)
Not much of a blog when you continue to cut and paste articles from other news sources. A little originality goes along way.
11:28 pm (reply)
I appreciate the constructive criticism, John. I write more personal items when appropriate (and when I have time) and I post links to articles I find interesting. That’s how I’ve been blogging for the last six years, and it’s worked well for me, but I change my patterns as I desire. Feel free to read again the blrub underneath “Who is Flexo?” in the sidebar.
2:45 am (reply)
You’ve been blogging for SIX YEARS? Good God! In the blogging world you are like a senior-senior-citizen :)
-Nev
3:13 am (reply)
Speak up, I can’t hear ya, sonny! Yeah, it’s a wonder I’ve survived the jungle this long. Now, back to enjoying my vacation.