So, one of your kids have gotten through education, landed their first real job, and now, they’re a fully-grown adult like you. That was quick, wasn’t it? Now that they’re ready to finally stop renting and buy their first home, you’ll obviously want to make sure that they get as close to their dream house as possible. Everyone hits a point where they need a place to call their own. However, securing the down payment, closing costs, and so on, can be major challenges for young adults. Here are a few tips for helping your kids buy their first house.
Apply Due Diligence
Applying all the necessary diligence to the deal your grown-up kids are looking at can be difficult, especially if they’re living on the other side of the country, and want to move somewhere locally. However, there are countless ways that buying houses can go wrong for young people, and being their extra pair of eyes can save them from a total nightmare. Make sure that they’re getting the house appraised, and make a point to get the best advice on the real estate market in whatever area your kid is checking out.
Nail Down the Legalese
Helping your adult kids into buying a house can be a terrific way to maximize tax breaks, but only if they’re structured in a smart way. It may be worth having a financial adviser who’s good with property to review the arrangement, and give you some pointers on any changes you should make. You may even want to get a lawyer to commit the agreement between you and your kid to paper. Their fees are going to be heavy, but with the potential for tax relief, this can certainly pay off.
Give Them the Down Payment
We mean this literally. Give them the down payment they need, rather than paying it for them yourself. Anyone can give another individual up to $13,000 over the course of a year without running into problems with gift tax. Furthermore, a couple can give another couple as much as $52,000. By giving them their down payment, you could save your grown-up kid a massive amount of tax.
Make a Private Mortgage
If your finances are stable enough, you may be able to totally forego the middleman of the bank, and make the whole loan to your kids yourself. This approach can often have a range of benefits for both you and your kids. If it’s going to be a long-term loan, the interest rate will have to be over a certain percentage set by the IRS, which changes regularly. This is so that the private mortgage qualifies as a loan, rather than a gift. However, this still frees up more income for the parents than they’d have going through a bank, usually gives the buyer a lower rate, and because the loan is secured by the property, gives them a deduction on their mortgage interest. Getting a private mortgage sorted can be a hassle, but financially, it’s well worth the effort.