What do you say when your kid comes to you and asks for help buying their first home? Obviously, you want to be there for them as much as possible; especially when they have shown you over and over that they are financially responsible enough to handle it. Before you say yes to them, we recommend that you read through these Top 3 Tips when Helping Your Kid Buy Their First Home.
Do An Assessment of Your Own Finances?
Before agreeing to support their finances, it’s usually a good idea to be sure that yours are in order. After all, how can you give them a boost if you’re not in great shape yourself. Remember that if you decide to donate or loan their down payment, co-sign on their loan, or help with a portion of the monthly payment, you may be putting yourself in a precarious position. Can you afford to loan them $5k-$20k without endangering your retirement? If they start defaulting on payments, can you afford to take up the slack so your credit isn’t damaged as well? Evaluate your money situation so that your retirement or quality of life isn’t being threatened. Don’t overextend yourself when helping your kid buy their first home.
Educate Your Kid on the Finances
Home Economic classes don’t seem to be as in-depth as they used to and most Millennials are woefully under-educated about personal finances, especially when it comes to owning a home. Don’t agree to help your kids until you have educated them on the value of credit, saving money, and loans. With credit and debit cards being more ubiquitous than ever, it is easy for people of every age group to lose track of their money. After all, you can’t balance a checkbook with ever transaction when there is no more checkbook. This make it harder for less experienced generations to keep track of their spending and reduces the chance of saving sufficient funds for a down payment.
Sadly, learning good credit is also a low priority when banks hand out cards left and right. Does your child know how credit works and how borrowing more, such as student loans, can adversely affect their credit score? Teach your kid about financing before helping your kid buy their first home.
Ways To Give When Helping Your Kid Buy Their First Home
For 2017, the IRS allows an individual to give a gift of up to $14k which means that between you and your spouse, you can donate up to $28k to your child and $28k to their spouse. That’s a grand total of $56k which is a respectable down payment for their new home.
Another easy method for helping their financial security involves setting up a Roth IRA, especially if they are still building their credit score. If your child has a full or part time job, they can contribute to the IRA and build up a decent financial base while improving their credit for better interest rates. If this is a route you want to take, it is important to speak to your financial adviser first.
Watching your kids take the steps to financial responsibility can be rewarding, but it does come with preparation. Take some time to ensure that you and your child are in the best of positions before taking the leap and you both will enjoy the benefits.