Should you help your child buy a home?
Connor Morris - Sep 09, 2021
If you’re wondering whether to open the Bank of Mom and Dad to help a child buy a home, you face a difficult decision. We’ve got a pros-and-cons analysis to make it a little easier.
Most parents who think about helping a child buy a home have something in common. When they bought their first home, it was significantly easier to make the down payment than it is now. Today, real estate prices have escalated, mortgage regulations are stricter and the cost of living is higher. So a parent might feel it’s reasonable to step in and help a child become a homeowner.
Benefits for your child and you
If a child needs help to make the down payment, the parents’ assistance can enable the child to move into a home of their own perhaps several years earlier than without the help. The parents’ financial assistance can also make the difference between the child owning the home they set their heart on and having to compromise. But it’s not only the child who may benefit. Parents are able to witness the support they’re providing – which doesn’t happen when assets are only left in a will. Also, the child would typically receive funds through a will when they’re already established, versus an advance on their inheritance now that can make a significant difference to a child who’s starting out.
As promising as helping out sounds, it’s not for every parent. Some parents worry that it sets an undesirable precedent – that the child will expect more financial help down the road. Other parents worry that the child will acquire a sense of entitlement and not develop financial independence. Another concern is that the young couple is only being set up to face more financial hurdles they’re not ready to meet, whether from starting a family, covering expensive home repairs or dealing with unexpected hardships such as job loss. Also, if you have two or more children and help one buy a house, you’ll need to avoid conflict among siblings by adjusting your will accordingly or giving advances on the other children’s inheritance.
Ask for our guidance
The decision to open the Bank of Mom and Dad is part personal, part financial – and we’re here to help you with the financial side. First, we can determine if the amount you’re considering, whether for one or more children, will have any impact on meeting your retirement savings goal. We can help you decide whether your assistance comes in the form of a cash gift, signing as guarantor on the child’s mortgage or another method. Note that with today’s restrictions, many mortgage lenders will accept a gift from parents toward their child’s down payment, but will not accept funds given as a loan. Finally, if you decide to gift cash, we’ll advise on how you access the funds from savings and investment accounts in the most tax-efficient manner.