As a parent, you want the best for your child, and for many, that includes helping them purchase a home. However, not all parents have the financial means to assist their children with a down payment or to co-sign on a mortgage. Fortunately, there are several strategies non-wealthy parents can use to help their children acquire a home.
One of the most effective ways to help your child purchase a home is to provide them with financial education. Many young adults are unaware of how credit scores work or the impact that high levels of debt can have on their ability to secure a mortgage. By providing your child with financial education, you can help them build a strong financial foundation, which will increase their chances of being approved for a mortgage.
If you have some savings, you can gift funds to your child for the down payment. The gift can be up to $15,000 per year without incurring a gift tax. Keep in mind that the gift must be documented and the source of the funds must be verified.
Another option is co-buying. This involves purchasing the property jointly with your child. You will be on the title and mortgage, and your child will be the primary occupant of the property. This is a good option if you want to ensure that your child has a stable place to live and you want to help them build equity.
Equity sharing is another option. With this strategy, you invest in a portion of the property, typically 25-30%, and your child pays the remainder. When the property is sold, you will receive your portion of the profit. This allows your child to build equity in the property and gives you a return on your investment.
There are also government programs that can assist first-time homebuyers with down payment assistance or low-interest mortgages. These programs vary by location, so it’s important to do your research and see what is available in your area.
Real Estate Investment Trusts (REITs)
Real Estate Investment Trusts (REITs) are another option. A REIT is a company that invests in real estate and pays dividends to shareholders. By investing in a REIT, you can provide your child with a source of income that can be used towards a down payment.
Helping your child acquire a home is a significant investment, but it doesn’t have to be out of reach for non-wealthy parents. By providing financial education, gift funds, co-buying, equity sharing, exploring government programs, and considering REITs, you can assist your child in realizing their dream of homeownership. Contact us today to learn more about how we can help you and your child navigate the homebuying process.