In fact, a July 2022 report by Attom, a property data provider, reveals that profits for home sellers surged in the midst of a new round of price spikes, and median home prices are up in almost every U.S. metro area. With homeownership becoming more out of reach, some millennials and members of Gen Z are looking at other ways to purchase a home—such as getting assistance from parents and grandparents. According to Vanessa Famulener at HomeLight, 43 percent of agents say they’ve seen an increase in non-romantic co-buyers, including parents, grandparents and adult children. “As homes become less affordable on the average family income, buyers are seeking out ‘co-buyers’ who aren’t their romantic partner to split costs and share the load,” she says. “In particular, first-time buyers are struggling the most to compete in this market, and are relying on loans from their parents and grandparents to scrounge up enough cash to buy a home.” Famulener says agents have seen a number of responses to the current housing market. Some parents and grandparents are co-signing on the mortgage for their kids or grandchildren, some are gifting the necessary funds to purchase a home, and others are opting for multigenerational living to make home owning more attainable. If you’re considering any of these routes to help your kid or grandchild in their home-buying journey, there are several factors to consider. Learn what the experts have to say about each scenario and the best way to keep familial drama out of the transaction.
Buying a Home and Living Together
Multigenerational living has been increasing over the years, and Jason Gelios, a realtor at Community Choice Realty in Detroit, Mich., says he sees several benefits. “This living arrangement can be advantageous because it can decrease the amount of debt each person is responsible for,” he says. “It splits the finances, and the ease of upkeep and maintenance of the home.” The range of home options that are in-budget can also improve when buying a house with family. “In my area of Southeast Michigan, we see adult children occupying a home with their parents because it affords them a larger, higher-priced home in a better-suited area for their needs,” he says. “Essentially, they get more home for their money, especially if they have multiple sources of income.” For anyone considering this route, Gelios says it’s important to fully understand the homebuying process, financing, and other variables. “This includes choosing the area or who is responsible for what utilities, and making sure everyone involved has equal say in the choosing of the home,” he says. With all the benefits that multigenerational living can afford you, Gelios points out that it also means signing up for a decrease in privacy and a potential increase in family disagreements (which are pretty hard to escape when you’re under the same roof).
Cosigning and Living Separately
If you’re able and willing to help your kids or grandkids buy a house, that’s a wonderful thing. However, Keller Lindler, financial advisor at Northwestern Mutual, advises getting the full financial picture before you enter into any agreement. For starters, do your kids or grandkids need you to provide financial assistance or do they need you to co-sign on the mortgage? “If they’re young and haven’t yet had time to establish credit, it’s understandable that perhaps they can’t qualify for a loan on their own,” Lindler says. “However, if they’ve been working for years and have had time to build credit, this might be a red flag since they should be able to qualify for a loan on their own.” Also, keep in mind that as a cosigner, your credit could be impacted. “If a payment is missed, this will have a negative impact on your credit score,” Lindler explains. “However, this can also work in your favor, as your credit score can improve if payments are paid on time each month.” That’s why there needs to be a clear plan outlining how the payment process will work, explains Carol Lynn Upshaw, loan originator at Hyperion Mortgage in Atlanta, GA. “Since both parties are equally responsible for the mortgage once it closes, a wise plan is for both parties to have an upfront conversation and even something in writing between them that spells out who will make the payment, when it will be made, how it will be made—auto draft, pay by phone, etc.—and an agreement about what would happen if the designated payor cannot make the payment on time,” she says. “Also, there may need to be a discussion as to when the co-borrower can be refinanced off the loan and what the timeframe needs to be if this is an important issue for the co-borrower.” For joint ownership to work, Gelios recommends treating it as a business transaction. “From making sure all habitants are obligated to the mortgage, executing a legal agreement that states who is responsible for what, and setting clear expectations, family members need to take the decision of joint homeownership seriously,” he says. “The hiccups come when one of the habitants of the home is not legally tied to the property, leaving the other homeowner on the hook to pay the debt.” In fact, if cosigning can be avoided, broker Ellen Sykes of Coldwell Banker Warburg in New York City, says it would be better to enable the kids or grandkids to buy the property in their own name rather than as co-owners. “It avoids the potential internecine conflict and accounting problems,” she says. “Co-owning, by its very definition, inspires power wrests—who has dominion over what and for how long?” Don’t underestimate the emotional toll that real estate transactions can take, she warns.
Gifting the Money to Your Kids or Grandkids
If you want to avoid any issues associated with cosigning on a mortgage, Ariel Sassoon, licensed associate real estate broker at SERHANT, believes the most financially responsible option is to put the asset in their name entirely. “This is the ultimate way to be sure the responsibility falls on them, and they will be directly responsible for the upkeep of the property itself, as well as the financial ramifications that come with being irresponsible in the context of late mortgage payments, failure to pay taxes, or failure to address physical issues the house may reveal over time,” he says. Sassoon says many of his clients have gifted the down payment, or the full cost of the property, in the form of a cash transfer to the child’s bank account with the sole purpose of purchasing the asset in their name. Sykes also agrees that this is the optimal solution for parents and grandparents who want to gift their offspring with the money to buy their own home. However, her one caveat is that the parents or grandparents don’t try to control the transaction or geographical location. “Both sides should resist the tendency to meddle with choice—where or how to live—and the gift should be given freely and without oversight.” If you’re gifting money for part or all of a down payment, you’ll need to provide documentation. “The donor will need to write a gift letter to the mortgage company making it clear it is a gift, not a loan,” says Carolyn Gagnon, a licensed real estate salesperson with Compass in NYC. “The gift letter includes the donor’s name and contact details, the amount, the donor’s relationship to the client, address of property for purchase, a note that no repayment is expected, and, of course, signature.” She says verification of withdrawal or deposit slips may also be required.
Other Considerations
If you’re still wondering whether or not it’s a good idea to help your kids or grandkids purchase a home, there are a few more factors you can consider. Upshaw says there are only two reasons she would be against parents or grandparents helping kids buy a home. One reason is if the transaction would create a hardship for the parents or grandparents and the other is if the child is a credit risk. If the child is unemployed or has a rocky history with money or payments, “that would be something that should be discussed within the family,” Upshaw says. If you have to sacrifice to help your kids or grandkids to purchase a home, this can also complicate the situation, and make it a more emotional transaction. “Parents may be giving up the freedom they anticipated in empty-nesting in favor of seeing their children living better than they might otherwise be able to afford,” Sykes explains. She says it’s important for the kids or grandkids to understand what may have been given up to make this happen—and if there are any expectations that come along with the gift. For example, if you expect to be able to move into the home you helped pay for when you’re in your old age, that should all be discussed before giving up the money. It should also be clearly explained if the money is a gift or a loan, and if the latter, Sykes says parents should have a reasonable expectation of a loan being repaid in a timely manner. Her most important piece of advice is that both sides should derive a level of joy from the transaction. “When either side finds it a burden, it is simply not worth the money,” she says.
