Nancy Graham October 28, 2020 Personal Wealth Should You (Still) Help Buy Your Kid a Home? Any parent of adult offspring can tell you: If you’re thinking of helping your kids buy their first home, it’s rarely a simple “yes” or “no”. We’ve covered this delicate question before, but the coronavirus and its economic fallouts have made it it’s worth revisiting today. On the one hand, your kids may now be in an even tighter spot than anyone could have realistically prepared for a year ago. On the other hand, as much as you may want to help, your own financial stability might also be on shakier ground. Plus, what if enabling them to buy a house they can’t really afford ends up instilling bad financial habits that ultimately hobble instead of helping them? Believe me, as a mother of three myself, I can very much relate to that question, as I face similar heart-wrenching quandaries of my own. The Logistical and Emotional Challenges So, what’s a sensible way to proceed if your adult children are struggling with a home purchase in these challenging times? Let’s start with a guiding principle that’s often lost in the emotions of the experience: Once your children want to buy a home, they aren’t children anymore. They are adults. This may be a hard to hear. You’ve been their parent for so long, it can be incredibly hard to break the habit of treating them like the 8-year-old you still remember. But once they’re adults, letting them make their own challenging budgeting choices can ultimately be in everyone’s best interest – even if you must let them make some mistakes and suffer some of life’s slings and arrows along the way. With that in mind, it might become easier to assess whether you can afford to get involved. For example: How much money is it, and where would it come from … specifically? Would there be tax ramifications, such as capital gains from selling securities for cash? How much would the commitment impact your own saving, investing and spending needs (especially retirement)? Could signing or co-signing a mortgage impact your credit rating if things don’t go as planned? How would having your name on a title play out in your or your child’s estate plans? There also are many emotional entanglements found in family gifts, loans, or co-signatures, such as: Potential marital strife if you and your spouse don’t agree on how much you want to help Awkward financial imbalances in your kid’s marriage Sibling rivalry if you won’t be able to buy every child a house of their own Overdependency on “The Bank of Mom and Dad” Unspoken tensions if anyone on either side ends up feeling unfairly treated The Basics of Lending To Your Kids After realistically assessing the practical and emotional entanglements involved, it might still make perfect sense for you to help your child buy a home,. If that’s the case, options to consider include: Offering a direct loan Signing or co-signing a mortgage Giving them a cash infusion to help Buying the house for them outright (as a gift, or kept in your name) Whichever way you go, I encourage you to treat the arrangement as a clear, legal transaction between you and your child. For example: Don’t do a loan on a handshake. Set up a formal agreement. Document what the consequences will be if they miss a payment … and follow through as described. If it’s a gift, revisit your estate planning documents. You may want or need to make some adjustments if other siblings are involved. Whoever holds the deed (you or your child) may want to protect the asset in the event of death or divorce. Before you sign or co-sign any mortgage, review the terms. Typically, you’ll be on the hook for the entire amount if your child and/or their spouse don’t come through as promised. To Give or Not To Give? I hope today’s review helps as you consider your next steps. If you decide to proceed, set clear, legally binding expectations, to minimize future misunderstandings. And if you would love to help your ADULT offspring, but you’re simply not in a position to do so, the best gift you may be able to give everyone involved is a firm, but loving “no.” Share: Facebook Twitter LinkedIn Email CIRO Advisor Report