So your son or daughter is ready to leave renting behind and commit to homeownership — but there’s just one problem. They need some financial assistance to get there. Maybe they’re sitting on a big chunk of student debt, or perhaps their credit score is below average. Whatever the case, you can help them reach the finish line and start a new chapter in their lives. Here are three common ways you can help your child buy a home.

Cover the down payment

If your child is a first-time homebuyer, they may have a tough time coming up with the down payment necessary for a home loan—especially if it’s a conventional mortgage. That’s why many parents help their children by paying for some or all of the required down payment.

The borrower must be able to verify the gift funds and provide a letter to the lender documenting that the money is a gift. As for you, the parent, there may be tax implications if you were to choose this route. You should consult a tax professional or attorney for more information.

Cosign the mortgage

Maybe it’s not the down payment that’s preventing your child from homeownership, but instead, it’s their poor credit. In this scenario, you can pitch in by cosigning the mortgage to increase their qualification. You would be on the mortgage application with your child, the primary borrower, as a means of adding an extra level of security if they are unable to make payments.

Keep in mind that this option should only be considered if you’re confident your child will stay current with the mortgage payments. If they default on the loan, you’d likely be on the hook for it. To learn more about what cosigning a mortgage could mean for you, click here.

Give the gift of equity

If you’re looking to sell your home, the gift of equity is a way to sell it to a family member (in this case, your child) for less money than the house is worth. You can give some of the value of the house to a relative for free. That way, as long as they can afford the monthly mortgage payments, a family member may be able to buy the house even if they don’t have enough cash saved for a down payment or for closing costs.

Gifting your equity to a loved one is a great way to keep your home in the family and help them achieve the dream of homeownership.

The learn all about the gift of equity and how it could work for you, download our free, educational guide below:

The gift of Equity

Ditech is not a financial advisor and the ideas outlined above are for informational purposes only. They are not intended as investment or financial advice and should not be construed as such. Consult a financial advisor before making decisions regarding important personal financial matters, and consult a tax advisor regarding the deductibility of interest and tax implications.

 

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