Monday, September 23, 2013

Helping your children buy a home

When I was attending University, it wasn't uncommon for parents to buy homes for their children to live in while in school. Or, another common scenario we encounter here at the Bob Hanscom Mortgage Agency is parents assisting with the purchase of their children's first homes.

What are your options as a parent to help your child? There are several - some more involved than others, but all really great if your hope is to give them a head start.

Option 1: Gift the down payment
Now that most lenders require 5% down payment, one way parents assist their children is by giving them the down payment. This means that the money should be an actual gift and not a loan

Option 2: Cosign the mortgage
Especially for kids just starting out with limited credit and reliable employment, lenders want to see a cosigner(s) to guarantee the mortgage

Pros: the kidlets get an earlier start on home ownership than they would if they had to take the time to build work experience and credit history

Cons: you will be equally responsible for any missed payments

Option 3: Buy a home, your child(ren) live as tenants and pay rentThis was common to see, as mentioned when kids were in school. After they were done, the parents rented out the property to other students in the area or sold the property

Pros: You may be able to give them cheaper rent than they could find elsewhere and at the same time, have an investment property of your own

Cons: At times, collecting rent could be an issue!

Option 4: Buy a home, your child(ren) live rent free

This can be arranged as a second home mortgage if a family member is living rent free on premises

Pros: You can help your child save for the future if they do not have rent to pay. You also will have a second home to stay in - particularly great if your child chooses to go to the University of Victoria!

Cons: You will be fully responsible for the mortgage payments

Whatever your choice, be sure that it suits your financial situation first and foremost.