Buying a House for Your Kid

Does your kid need a place to live? Some established parents are choosing to purchase a home for their adult children. Of course, you could go old-school and kick them out of the nest fledgling-style but today’s real estate market doesn’t provide a very soft landing! Here are several situations that might lend themselves to the purchase of a home for your kid, along with some of the factors you’ll need to consider.

During College

Some parents buy their kid a home to live in during the college years. This often means purchasing a property in another county or state. In this case, the property can likely be treated as a rental or as a second home for tax purposes. The parents will probably retain title to the home and either continue to rent it or sell after their child graduates.

Starting Adulthood

If your kid is starting adulthood you may be considering a home purchase on their behalf. A precipitating factor for this scenario might be high property values in the area. Sometimes, despite good financial choices, home ownership simply isn’t attainable for the next generation. Parents may also want to help their kid start their adult life in a more stable position than renting provides. Of course, you might simply want to get your kid to finally move out! If your home purchase coincides with the start of adult life for your kid, consult a CPA before deciding on how to finance the purchase. It’s important to handle tax and title questions ahead of time so you don’t get surprised with a high tax bill or other liability down the road.

After a Life Event

Some parents choose to buy a home for their adult child after an unexpected life change – Common examples include bankruptcy, divorce, or a medical event. In this case, decide ahead of time who will hold title to the property and for how long. You might consider a rent-to-own contract, also called a land contract. In this scenario your kid will pay you a monthly “rent” amount toward a down payment. Eventually, he or she will obtain a mortgage and purchase the home from you.

Combining Households

Sometimes life changes and it makes more sense to combine households. In this case you’re buying a home with your kid more so than for your kid. However, the mortgage and/or title might still be in your name depending on how your family decides to approach financing. Parents and their children can sign on as co-borrowers to potentially increase spending power or one party can handle the entire purchase. When subsequent generations begin to rely on one another for childcare, elder care, financial stability, or any other significant reason, moving in together sometimes just makes sense.

If It’s Truly a Gift

If you have no intention of being paid back, consider a gift in lieu of an all-out home purchase. Gifts to your children are tax-free up to a certain amount ($15,000 in recent years). Your gift can be used to increase your kid’s down payment amount, thereby lowering his or her monthly payment. A one-time gift can sometimes bring home ownership within reach for a buyer with solid income but little or no savings.

Consult the Experts

Before you start making decisions (or even start looking at houses) consult the experts. Your CPA, loan officer, and Realtor are all great sources of information. Let them know that you’re considering buying a house for your kid. Ask questions and bounce ideas off them before you take the plunge. You’re about to sign into a unique financial agreement and it’s best to discuss the details ahead of time. The loan experts at Ruoff are here if you have any questions. Call or email anytime!