The Investopedia article: A quick guide to buying a home for your child by Kimberly Rotter offers the pros and cons of various ways to make a child’s dream come true…the dream of home ownership.
I have written about the methods of ‘gifting’ on my website blogs: www.attorneybarbaradalvano.weebly.com under Archive “gifts”.
One of the least appealing ways to help your adult child is to assume the debt for payment of a mortgage (co-signing). In this circumstance think the word ‘default’. Consider also that since a certain percentage of marriages end in divorce (should your adult child divorce his/her spouse), you could be entangled in financial/family battles that you did not anticipate.
If you give an outright gift of substantial funds, remember that there are rules about the ‘sourcing of those funds’ that you give your adult child as a down payment. Keep in mind also the words, “gift tax exclusion.”
Interest free loans and the interest deduction pitfall also have serious financial considerations.
If you plan to purchase a home and collect rent from your adult child, consider that a second home (rental property) has different mortgage rates. And…Do you really want to become the ‘landlord’ for your adult child?
I encourage parents, who plan to help their adult children with home purchase, to read the Investopedia article and talk with a professional about the various options.
If you have an estate plan (and you should), consider how that plan will be affected in the long term by the help you offer to your adult child.
Remember, also, that any financial arrangements you make (even with a close family member) can be legal and binding. It is best to put any obligations in writing with very specific details in the agreement.
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