Keys to the Future: Assisting Your Child in Buying Their First Home
Strategies and Considerations When Assisting an Adult Child Purchase or Acquire a Home
With the value of homes at an all-time high, and mortgage rates still significantly elevated, the cost of entry remains challenging for young homebuyers. This presentation will address several topics, including:
- How gifts need to be structured when conventional financing is needed
- How to legitimize a loan to a family member
- Co-signing and co-borrowing a mortgage
- Considerations when owning property jointly between family members
- Financial and tax planning considerations when gifting or loaning
- Buying property outright and renting it to the child
- Contract for deed and rent to own arrangements
- Trust options and estate planning considerations.
Preview
The home can play an important and sometimes integral role in building wealth and retiring with peace of mind. Considering the growth of home values and the equity developed over time, real estate can be an additional asset that can help diversify the balance sheet and provide flexibility with retirement planning.
Assuming you have a fixed mortgage rate, the home can lock in a portion of your overall living expenses long-term. It can provide tax benefits and deductions. Once the mortgage is paid in full, your overall living expenses are likely to drop considerably.
Absent sufficient liquid assets on the balance sheet, the home can be utilized as collateral for a loan, or to help fund healthcare or be available to be sold to support a long-term care event later in life.
The home can be the centerpiece of an inheritance that goes to your heirs when you pass away, and under the current laws, it can be sold by those heirs tax free after a step up in basis takes place. For many of our clients, owning a home becomes an important part of their financial and retirement plan.
Recent Trends
Home ownership for younger generations has been difficult to achieve in recent years. With the average fair market value of homes across the country at record highs and the interest rate for a 30-year fixed mortgage in Colorado still relatively high at 6.92% as of August 6, 2024, according to Bankrate, buying a new home is currently out of reach for many new buyers.
Assuming a parent is in a position to help, there are numerous strategies that can be deployed to assist a young home buyer, depending on the means available and the specific approach the parent prefers. There are pros and cons to the various approaches and considerations to contemplate, and the duration of this article is dedicated to examining different tactics so parents who are able and willing to assist can understand what to expect from each strategy.
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Advisory Services offered through Peak Asset Management, LLC, an SEC registered investment advisor. The opinions expressed and material provided are for general information, and they should not be considered a solicitation for the purchase or sale of any security. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. This content is developed from sources believed to be providing accurate information and may have been developed and produced by a third party to provide information on a topic that may be of interest. This third party is not affiliated with Peak Asset Management. It is not our intention to state or imply in any manner that past results are an indication of future performance. Copyright © 2024 Peak Asset Management
