How to help your adult child buy a home

Question: Dear Kari, My husband and I are considering helping our only child, who is aged 35, buy his first home. Could you please offer some advice? Answer: It's wonderful you're considering helping your son achieve homeownership, especially in California's challenging market. This can be a game changer for him. There are several methods in which you and your husband can offer support, each with its benefits and considerations: * Gift money for the closing costs on their first home purchase. You'll need to sign a gift letter confirming the amount and that it's a true gift with no expectation of repayment. The lender will need documentation showing the funds being sent to the escrow account at closing. Any one person can give a gift of up to $19,000 to another individual and not have to pay taxes on it or report it to the IRS. For married couples, the limit is $19,000 each, for a total of $38,000. * If simply gifting money isn't the preferred path, parents can still offer support by loaning their child money for their home purchase with the method of a structured second mortgage. This will legally protect everyone involved. This should be officially recorded along with a Deed of Trust on the property at the county recorder's office. * Working with a trust or shared equity, parents can purchase the home through a trust that benefits their child. Then allowing the child to live in it under defined terms while the trust retains ownership. * Co-ownership agreement in which the parent and child jointly own the property. * Gift a portion or the entire down payment, which can significantly ease the financial burden of buying a home. * Co-sign on the home mortgage, as this can help with qualifying for the mortgage plus securing better loan terms. However, this requires agreeing to make the mortgage payments in the event the primary borrower cannot. * Assisting with monthly mortgage payments: In the initial stages, parents could help with some mortgage payments, providing the child with more breathing room to adjust to homeownership expenses. * Parents could buy an investment property and let their child live there, but the downside of non-owner-occupied properties is the interest rate would be higher, and the down payment requirement is typically 25-35 percent of the purchase price. * Kiddie Condo Loans: It can be a wise choice to use the FHA and Fannie Mae loans to buy rental properties with 3.5 percent down payment for kids in college and disabled kids. FHA and Fannie Mae have very flexible provisions that allow parents to co-sign for their kids that are in college for any type of residence, not just condos. Therefore, the kids can buy homes near the college to live in and rent out to roommates as well for extra income. The kids just need a credit score and minimal other qualifications; income is not necessary. These are excellent loan programs that help the parents along with the kids get into the real estate market with very little cash. * Help your child learn about all the special mortgages and assistance programs that are available in California that can help first-time homebuyers. If you're a parent wanting to invest in your child's future, helping them buy a home can be a powerful way to provide financial security, build long-term investment potential, and create a more affordable path to homeownership. Now we can realize several effective ways you can show support for your child in reaching this significant goal. It would be wise to first consult with a local financial advisor, legal professional and/or real estate professional to help determine the best decisions for your specific circumstances. I wish you the best of luck.