As the Mom of a daughter who recently purchased a home, it was important to me that my daughter had a good understanding of the responsibility that comes with home ownership as well as the obligation to a mortgage. First, we agreed she would live with me for one year, with no rent payment, while putting the estimated monthly payment for a mortgage into a savings account. I also encouraged her to participate in both the financial and physical responsibility of the maintenance of our home throughout the year. During that time, we also talked about monthly utilities, surprise expenses, and the importance of a cash reserve to fall back on when you are presented with those surprises.
At Sandy Spring Bank, we often hear from parents who want to help their children buy their first house. Whether it is through ‘been there, done that’ advice or financial contributions, there are a variety of ways local parents can help their children achieve their home ownership goals.
Give a gift
If a parent wants to assist their child with the down payment portion of their first home, they are able to contribute up to $14,000 without a gift tax implication. To double the benefit, a second parent can also contribute up to $14,000 for a total of $28,000 without effecting the gift tax exclusion.
Co-sign an FHA Loan
Another option for local families is an FHA Loan. While adding parents as a co-signor will have no impact on the interest rate, the parents/co-borrower contribute money towards the down payment, reducing the LTV (Loan-to-Value ratio), and thus reducing the risk quotient. The parents, in this case, called the non-occupant co-borrowers, are still equally liable for the note repayment.
While they’re still living at home, parents can have children pay estimated mortgage amount for a few months before they buy their house. As an added bonus, parents can save this money on behalf of their children and it can be applied toward their down payment or closing cost. To ease the documentation burden, the money should be saved in a joint account with the kids, to ensure the funds can be treated as their own when it comes time to purchase the home.
Having these conversations with adult children is vital in assisting in their home ownership goals. Most importantly, adult children can grow and leave home with an understanding of the responsibility they have taken on and truly what it means to be a homeowner. To learn more about the loan process and to connect with a Sandy Spring Bank mortgage team member, check us out online: https://www.sandyspringbank.com/mortgage–loans/mortgages.aspx