Young, first-time Long Island NY homebuyers are becoming an increasingly rare site these days in the housing market.
According to the Census Bureau, the homeownership rate for the 35-and-under crowd fell to a 22-year low in the second quarter. This has some parents wondering whether they can, or should, help their kids buy a home.
Should You Help Children Become First-Time Long Island NY Homebuyers?
Parents have helped their children for decades with down payments and even loans. But recent economic and mortgage-market realities have made the question more acute. Whether you should step in is a question only parents can answer. Here are some considerations if you do decide to help.
Down Payment Assistance:
There are potential tax implications to consider. Individuals can currently make tax-free gifts of up to $14,000 per recipient. That means Mom and Dad could give as much as $56,000 to their child and a spouse before hitting the IRS's annual cap on tax-free giving. Make sure your child is married to qualify for that limit. Live in boyfriends/girlfriends don't qualify.
Anything above those limits requires reporting to the IRS. But you can certainly give more. The good news is you won't have to pay taxes until you bust through the lifetime gift exclusion, which now sits at $5.34 million, well above most people's worry limit.
Lenders will have specific guidelines for how to document and source gift funds. They'll also want to see in writing that this is a "no strings attached" donation, and not a loan to be repaid.
Depending on the type of loan and gift amount, children may need to contribute some of their own money to the cause to become first-time Long Island NY homebuyers.
Parents can also co-sign on a mortgage with their child, although we don't recommend it. Some loan types, like VA home loans, have occupancy restrictions, but there are plenty of options for co-borrowers who don't actually plan to live in the property full time.
Helping with a down payment is one thing. Co-signing on a loan exposes parents to significantly more risk when it comes to their credit and financial profile. A child who misses a mortgage payment or winds up in default could wreck their parents' credit for years.
No one expects to lose a job, get divorced or face some medical crisis. Anything that affects your child's ability to make good on their obligation means the full responsibility falls to you. That may or may not be financially feasible for some parents.
Parents as the Lender:
Parents with the liquidity for an all-cash purchase can opt to draw up their own mortgage and repayment plan, likely with the help of an attorney and a financial planner.
There are federal guidelines regarding interest rates on loans like this, which is all the more reason to consult financial and legal experts. This kind of arrangement can generate interest income for parents, while getting kids into a loan with a lower rate than they'll ever find on the market. It could be the only way for the children to become first-time Long Island NY homebuyers.
The Simplest Approach:
Although not necessarily feasible, paying all-cash is certainly the simplest way to go. No credit review, no checking where the down payment came from. All cash sales accounted for almost a third of all home purchases in June.
No matter which route you take, if helping your children become first-time Long Island NY homebuyers, we strongly recommend you seek legal counsel and advice when structuring any agreements.
Check out some of our other articles on becoming first-time Long Island NY homebuyers by clicking the Long Island NY Home Buying Tips link to your right under our Long Island NY Real Estate Categories.