The Gift of Homeownership: How to Help a Loved One on Their Journey

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When the time comes for a loved one to purchase a home, you want to do everything to help, especially in today’s housing market. Whether through sage advice, financial assistance, or just being there as a pillar of support – with your guidance, their journey becomes more than a transaction; it transforms into a testament of love and generosity.

Explore Joint Ownership

While purchasing a home is a significant milestone, it doesn’t have to be solitary—joint ownership, involving multiple buyers, can be a practical and financially beneficial option. In fact, in recent years, about a quarter of all homes sold in the U.S. were sold to co-buyers, according to a report from CoBuy.

Friends, family members, roommates, business partners, and romantic partners might consider joint home ownership. However, it’s crucial for the group to align on how they intend to share the deed to the property. Clear communication and legal agreements are essential to avoid potential conflicts down the road.

Buying a Second Home for a College Student

Before you panic at the thought of a second mortgage, let’s examine the long-term benefits of a second home versus paying for a child to live in university housing.

Investment Strategy

  • By investing in a different market of real estate outside of your primary residence, you have the potential to increase your investments.
  • Owning a second home also opens up the options for your living situation after retirement.
  • Owning instead of renting a home will also allow the home to build equity.

Options for Parents Helping Kids Buy a Home

As the holiday season approaches and families come together, discussions often revolve around real estate, especially the prospect of helping children purchase their first home. While gifting a down payment remains a prevalent method, there are several avenues parents can explore to support their children in this significant milestone.

Gifting a down payment

One of the most common ways parents assist their children in buying a home is by gifting them a down payment—in fact, more than 20 percent of buyers use down payment gifts to purchase their homes, according to experts. This approach can significantly ease the financial burden on the homebuyer, enabling them to secure a mortgage with a lower down payment requirement.

Tax implications of cash gifts

However, it’s crucial to consider the tax implications associated with cash gifts, especially if the amount exceeds the IRS’s annual gift tax exclusion of $15,000 per recipient. If the gifted amount surpasses this limit, it may incur gift taxes. In this scenario, consulting a tax professional becomes important, as they can provide guidance on the most tax-efficient way to gift a substantial down payment.

Cosigning the mortgage

One other option parents may consider to assist their kids in buying a home is cosigning their mortgage. By becoming a cosigner, parents share the responsibility of the loan with their children; this can enhance the child’s eligibility for a mortgage, especially if the child has a lower credit score or is still building their credit history.

However, cosigning a mortgage comes with financial and legal obligations. Late payments or defaults can negatively impact both the child’s and the parent’s credit scores. It’s imperative to thoroughly understand the risks involved and have open, honest discussions with the child about their financial responsibilities.

Note: This article was adapted from a longer, more in-depth article. To read the full article, please visit tinyurl.com/bdd394ub.

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