5 Things to Consider When Buying a House With Parent's Help

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There are many benefits to buying a house. You can build up your credit history with regular payments while also investing in your future finances. Instead of paying rent, you can put money into a home that you one day might sell for a profit.  While buying a house can be financially beneficial, it is often out of reach for many young people who don’t have much saved, aren’t in high-paying positions, or need to pay student loans. As a result, some parents are stepping in to offer financial help with the home-buying process.  Without a clear conversation beforehand, the generous help from your parents could become a financial burden filled with family drama.  If you are thinking about buying a house with parent's help, ask these five questions so that you are considering each aspect of the financial process before you accept their support. 

#1) How Much Will Your Parents Provide for Support?

The first question to ask if you are buying a house with a parent's help is how much they are willing to contribute. It is better to know this before you start looking for homes. Understanding your budget can help you know how much house you can afford. You are less likely to fall in love with an expensive house if you never even look at it.  Knowing what your parents are willing to offer can also help you determine your financial situation. If they are only covering the downpayment and closing costs, then you will need to find a mortgage that fits your budget.  However, if they are willing to buy the whole house then you may only need to budget for insurance, maintenance, and homeowner’s insurance costs. 

#2) Will Your Parents Pay Your Mortgage or Offer a Lump Sum Gift?

Once you know what your parents are willing to contribute, figure out how they will offer that support. If your parents have the money saved up, they may be able to transfer it to you in a lump-sum. This may allow you to make a larger down payment and get more favorable interest rates with your lender.  Another option that some parents choose is to pay the mortgage on their child’s house. They may strike an agreement where they pay the mortgage for a few years while their child pays off student loans. If this is the case, know when the mortgage payments will end so you can plan to take over for them.   

#3) Are You Expected to Pay Back the Money? 

Some parents offer “mom-and-pop loans” because the interest rate is significantly better than anything a bank can offer. Determine whether the financial support for the house is meant to be a gift or if it’s a loan that needs to be paid back.  If your parents are offering a loan for your mortgage, then treat it with the same respect as with a bank. Identify a fair monthly payment that you can handle and determine how many months it will take to pay back the loan. You should also discuss interest payments and any options if you can’t make your payment on time.  

#4) How Does This Financial Support Impact Your Siblings?

If your parents are willing to offer a significant financial contribution to your home, then your family may need to reconsider your financial relationship with your siblings.  For example, some parents consider a down payment on a home part of their child’s inheritance. If they give you $20,000, your parents may adjust their will so you receive that much less than your other siblings. Similarly, some parents offer money to one sibling if they covered a different major expense from another (like a wedding). This is meant to keep the financial support of all siblings fair.  If you’re buying a house with parent's help, make sure you understand how this will impact your siblings and their relationship with you. 

#5) How Involved Will Your Parents Be in the Buying Process?

There’s an old adage with weddings that whoever pays for it has the most decision-making power. If you don’t discuss the terms with your parents beforehand, you may be in a similar situation with your new home.  If your parents are buying the house, they may want you to live closer to home or want to limit the neighborhoods where you live. They may also place limits on who you live with or what you spend your money on if you are expected to pay them back.  These limits are okay if you agree to them before the buying process starts. However, make sure you know what strings are attached to the funds before you accept them.  

Communication Is Key to Buying a House With Parent's Help

Parental help can significantly ease the burden from young homebuyers; however, you need to communicate with them and understand the terms of the cash.  If you are a first-time homebuyer, check out our other resources for finding different types of mortgages and making smart home insurance decisions. You can also use our system to find a Realtor® who specializes in helping new buyers navigate the real estate process.  Photo credit: nighthawk-shoots-E-9OPt48UmA-unsplash

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