What you Need to Know About Helping your Child Buy a Home
As Millennials are becoming the primary homebuyers, they face unique challenges that many parents are eager to help overcome. Helping your child buy a home is a wonderful gift that can last a lifetime.
If you are considering assisting your child with his or her first home purchase, there are many variables to consider. From lender rules to gift money taxes, you will want to do your research and speak to a local professional before making any decisions. Below are important points to consider and to discuss with your trusted advisor.
Lenders’ guidelines can vary from company to company as can types of mortgage requirements. Here are a few questions to address:
Who is on the title and who is on the mortgage? The lender may require that anyone on the title also be on the mortgage. Keep this in mind as you work through the details of ownership and mortgage debt responsibility. If you are looking to take advantage of tax breaks or taking out another loan of your own, be aware of how your involvement changes your own status.
Who has to pay the down payment? Many loans have differing requirements for who pays the down payment. If gifting the down payment to your child is an option for you, research and ask about the varying rules for the different types of loans. While a certain type of loan may seem right for you it may not have the flexibility you need.
Are there rules surrounding gifting money? Gifting money is not as easy as buying a birthday present. Gift money after a certain amount is subject to federal income tax tacked on to your child’s tax return There are ways to navigate those amounts (such as gifting to both your child and their spouse) but it is best to speak to a local mortgage expert to understand how gifting can be limited or taxed.
Consider the first-time home buyer benefits.
Before you make the decision to aid in the home buying process, take time to research the benefits of first-time home buyers and if your assistance will disqualify your child from those benefits. If a person has not owned a home within the past three years, typically they’re considered “first-time homebuyers” that come with perks.
To help jumpstart the process, many programs offer assistance in getting over that first hurdle such as weak credit, low-to-zero down payment requirements, or down payment assistance. Michigan offers several options for its residents. You can find information for first-time homebuyers assistance and their requirements by clicking here.
Assisting in your child’s first home purchase can have lifetime benefits of building a good credit history, providing them a stable home to start a new life in, and building long-term investment equity.
If you are considering this option, let us know how we can help. We have a huge network of trusted professionals in the title and mortgage industry that can guide you through the financial web. When you are ready to start searching for homes, we will be ready for any questions you may have!