Increasing mortgage rates and housing prices may make it tough for your kids to own a home. However, families appear to be helping the younger buyers purchase a home. Before you lend a hand, here are three ways parents can help make it more affordable for first time buyers to purchase a home.
Gift the Down payment Money
When you give money to your child’s down payment, it classified as either a loan or a gift. With a gift, there’s no contract or ongoing commitments.
Your child’s mortgage lender will need proof showing that the money is a gift, not a loan. You will need a gift letter, where you state don’t plan on asking for the money return. Your child’s mortgage lender may also ask for a paper trail verifying where the money came from.
When it comes to taxes, it can be transferred tax-free up to a certain limit. You can give up to $15,000 without filing the gift-tax return.
Buy the house and rent it out to your child
If you can afford buying a second home, you have the option to rent out to your child. This might be a good option if your child can’t qualify for a mortgage. When buying a second home, there’s generally deductions available for property taxes, mortgage interest, repairs, maintenance, and structural improvements. So, what’s the catch? Your kids must pay you rent to be qualify for these tax deductions. So, make sure they aren’t living in the house for free.
Buy and co-own the house
This arrangement is a good opportunity, however, not all mortgage lenders offer homes loans for shared ownership. When shopping around, you would want to double check this financing option.
Co-borrowing helps borrowers overcome a limited credit history. But remember, you would want to keep in mind that the parent’s credit could be affected, making it harder to finance another big purchase later.
If you want a full team of Mortgage Professionals to help you with your decision on what is the best loan option for you, we’re happy to help! Please don’t hesitate to reach out to us at 770-552-1000. We look forward to hearing from you!