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Sharon Falco

Should You Help Your Child Buy Real Estate?

Posted Wednesday, September 25, 2013

Man Handing Keys To a Youn CoupleWith appealingly low home prices and historically low mortgage rates, you know this is an ideal time to buy real estate. What about your adult child who doesn’t have the down payment needed to buy his or her first home? Should you help him or her take advantage of this opportunity?

Many parents are asking themselves this question. According to a survey done by the National Association of REALTORS®, about 36% of first-time buyers received help with their down payment from family or friends.

If you’re considering this serious step, be honest with yourself in answering the following questions:

Can you afford it?

The first thing to ask yourself is whether you can afford it. Are you on track to reach your financial goals for retirement? If you are not, you cannot afford to help your child buy real estate.  Additionally, some financial experts suggest that you should not tie up more than 3% to 5% of your assets in family loans.

Are you prepared to lose the money? 

Your offspring may fully intend to repay you, but his or her ability to do so could change quickly in today’s financial environment.

To reduce the possibility of your child falling behind on payments or defaulting, create a contingency plan.  If the amount you’ve lent is small enough, you might decide to give it to them as a gift. If not, work out a schedule of repayment. For instance, you could reduce the monthly payment. Just make sure you get some type of payment on a regular basis, even if it’s only symbolic.

Will your other children be jealous?

Your other children should know that you are providing this aid, whether you intend to also help them financially, and if not, why you made that decision. If helping one of your kids finance a home will cause a major rift in your family, you may not want to move forward with it.

Can you do the deal and then back off?

Helping your son or daughter buy real estate can be a positive for all of you. But you don’t want to be the type of parent who helps and then spends the next decade dictating how to decorate the home and dropping in to visit any time you please.

If you’d like to find a home to purchase for your child, I can help.  Give me a call today for additional information.

Links:

Historically low mortgage rates

http://mortgage-x.com/trends.htm

Financial goals for retirement

http://www.principal.com/calculators/retire.htm


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