It is a fact that home values have increased at a pace beyond wages, and there are stricter mortgage rules with a higher cost of living. Many Millennial and Gen Z adults believe owning a home is impossible. Parents of this age group, including me and my husband, are presented with difficult questions, “How do we help our children realize their dreams?” A 2019 First-Time Homeownership Study noted that 37% of homebuyers received financial gifts and loans from family members as opposed to 31% in 2015. While we can highly value our children achieving their economic independence as they enter adulthood this study highlights that half of the people who received a gift or loan would have otherwise delayed purchasing a home.
The first step is to ensure you can afford to help before offering. Working with a planner decide what you will need first, including what you want for the retirement of your choice and funds for care as you age, then plan how to help your children. You do not want to cause money problems for yourself, like on an airplane you need to have an oxygen mask on before you help others. There are legal and financial obligations that will impact your parent-child relationship for all the options listed below. Whichever method you select, design a plan to equalize or balance this with a sibling. What you choose to do is up to you, your values, and your financial situation.
Ask yourself these questions before posing the transaction, “Is this a good idea for my child?”, “What will happen when expenses come up?”, “How will the gift or loan be protected if there is a divorce or separation?” High-risk situations include an adult who does not have regular income, is going through a divorce or separation, or is undisciplined with money. Sometimes waiting for the right time is best. Also, consider your role in the process, are you letting your child choose freely how they want to spend the money or do you input? Will you expect to go to open houses? Have the courage to enter into these conversations at the start of the process to avoid potential parent-child conflict later.
June 7th
Look for PART 2:
Where will the money come from?
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