How to Help Your Kids Buy a House, UPDATED
A few years ago, I wrote this title and article based on the competitive nature of the residential real estate market.
Today, it’s still competitive, but with interest rates in the 7% range, affordability is another issue hindering homeownership.
When I started as a realtor helping buyers in 1991, the average age of a first-time homebuyer was 26 years old. Today, the average age for a first-time homebuyer is almost 36 years old. Yes, people are waiting longer to get married; yes, it doesn’t cost anything to live in your parent’s basement (I had to throw that in there); yes, houses are much more expensive, and yes, interest rates are much higher than two years ago but, if wages and salaries were going up at the rate home prices are going up, there would be no issue. Unfortunately, we all know wages have not kept up, and affordability is the number one issue. Interest rates and inventory shortages have made homeownership out of reach for many buyers.
On the other hand, the run-up in home prices has created unprecedented wealth for parents who have been in their homes for years. They see the benefits of homeownership and want to give their kids the chance to participate. Although inventory will be a long-term challenge, interest rates will go down, so current homeowners, no matter what rate they get now, will go down. Parents want to help their kids, so here are some ways to help.
The following examples are what I have seen done in the marketplace. ALWAYS seek the advice of a professional before proceeding.
- The State of Ohio has opened up a new Homebuyer Plus Program. This savings program is a little like a 529 college savings program, but it grows by deposits and earns well above market interest rates on a savings account (not stock market-based). Future homebuyers (18 years old) and relatives can contribute to a savings account from an accredited bank or credit union that will pay an enhanced interest rate from the bank subsidized by the state. I’ve seen current rates for these savings accounts at 6.75%, which is pretty good for a savings account. Also, deposits are deductible on state income taxes. The money must be used within 5 years; the maximum is $100,000. It makes a great wedding gift! More details at www.ohiotreasurer.gov/homebuyerplus.
- Gift all or part of a downpayment. There is no limit to how much you can gift (for lender purposes), but there are tax ramifications. Currently, $20,000 can be gifted per spouse. Dad can give $20,000, and Mom can give $20,000. Again, consult a CPA.
- Co-sign for a Loan. If the kid has no credit, low credit, or little credit, parents can choose to co-sign on a loan as a non-owner occupant (except on a VA loan) and not be on the title if they so choose. If the kid has not established credit yet, parents can add the kid to the parent’s credit card, and that credit history is now part of the kid’s credit report.
- Pay Cash for The House. In this competitive market, a cash offer is more attractive to a seller. If parents have the means, they can buy the house for the kids, and then the kids buy it back from the parents. We're seeing more and more of this.
These are a few ways parents are helping (and getting them out of the house). For more ideas and creative ways to help, contact me at halfthebeatles@aol.com or call/text at 614-570-2853.