There are many ways parents can help their children purchase a home: contributing to a down payment, helping with closing costs, co-signing a mortgage or allowing their kids to move back home so that they can save money.
While most of these avenues involve giving your children money, deciding where that money should come from is an important decision. For parents nearing retirement, pulling money from a savings account or a 401(k) retirement account can be problematic if the money is needed for retirement. Without it, they could end up moving into the house they helped their children buy.
A poll by loanDepot found that more parents are planning to help their millennial children buy their first home. Sixty-seven percent said they planned to pull the money from their savings account.
Here are the percentage of poll respondents who planned to use other sources of parental support:
Refinancing their own home: 8 percentTaking out an unsecured personal loan: 8 percentSelling equities: 5 percentBorrow from 401(k): 4 percentSell primary home: 2 percent
For the parents who do pull money from their savings account to help with a down payment, theres some disagreement with their children over whether the financial support is a gift, loan, inheritance or something else, the poll found.
Most parents (68 percent) view it as a gift, while more millennials (36 percent) viewed the financial support as a loan to be repaid (29 percent).
A down payment on a home is the most common form of assistance from parents, with half of those polled planning to help in that way on future purchases. The other methods were:
Allowing their kids to continue living at home to save money: 33 percentPaying other expenses so the children could save money: 30 percentKids moved back home: 22 percentHelp with closing costs: 20 percentCo-sign the mortgage: 20 percentHelp pay down student loan debt: 18 percentHelp pay their rent for a period of time: 8 percent
Allowing an adult child to move back home so they can save money may be the least costly option for parents wanting to help their children buy a home, as it shouldnt require parents to pull money from their savings or retirement accounts that they will surely need down the road.
Published with permission from RISMedia.