Estimated read time: 2-3 minutes
SALT LAKE CITY — There's a surprising growing trend in real estate. Parents and older adults are buying homes for their adult children.
Bidding wars are back, and some buyers are staying competitive with all-cash offers.
Patti King purchased a home for her son.
"So now that he's graduated, rents are still crazy expensive. He doesn't want to throw away money. I didn't want him to throw away money on something that he would never actually end up owning. And it just made more sense for us to purchase something else that he could have to live in," King said.
Glenn Kelman, CEO at Redfin, explains the incentive for parents to help out.
"Banks are charging 7%. Mom and Dad aren't charging 5% or 6% or 4%. They just want the principal back and they don't mind if it takes a few years to get it."
There are other ways parents can help kids be first-time homebuyers.
Alvina Lo, a chief wealth strategist with Wilmington Trust, suggests acting as your children's bank and lending them the money.
That alleviates the burden of meeting certain asset and income requirements that banks typically require.
To avoid gift tax implications, parents should add a promissory note and charge a minimum interest rate.
Parents can also help their child bridge the gap amount in the down payment. That allows kids to use the cash to make future mortgage payments.
Parents could also give the money as a gift. The strategy is called annual exclusion gifting. They may give up to $17,000 per year — per child — without tax consequences.
If a parent is married, spouses could gift $34,000 per year for each child.
And lastly — a common way parents can help their kids buy a home is to co-sign a loan. This can help kids who haven't established credit and help secure better terms on their loans.
However, if your child doesn't make payments on time, mom and dad are contractually obligated to do so.
You should talk to a tax adviser before considering this strategy to make sure you're following income and gift tax implications.
