Owning a home is typically the biggest financial decision any person will make. When thinking about your child's future, this probably will ring true for them as well. As a parent, it's your job to help set your child up for success and make sure that they are ready for all of the things ahead of them. When it comes to future homeownership, what can you do to help your children succeed? In this article, we’ll cover five important things that should be on your list of to-dos.
#1 Prepare Them To Inherit
Do you already own some kind of property? If your child is likely to be taking it over sometime in the future, it's worthwhile to teach them about the ins-and-outs of property ownership and management by using your property as a prime example. If you own a property already and your child will be taking it over, sit down and have a talk with them about its value, its monthly obligations, and other things they may not have thought of before.
By going into great detail with them about how to manage and own this property, you can help your child realize the many things they'll want to take into consideration when it does come time for them to manage it themselves. With some basic information, they can begin thinking about the financial commitments and the obligations of time associated with this property. However, you should also reinforce its value and whether its equity is increasing or not.
#2 Educate Them
Educating your children about finances is one of the most crucial things you can do as a parent. This means taking them step-by-step through the many expenses that come along with owning a home, whether it's the monthly mortgage payment, the mortgage insurance, water, electricity, internet, or a variety of other expenses that they will be expected to cover when it comes time for them to own their own home.
Simply educating your children on all of their future financial obligations that will go along with owning any home can help prepare them and give them a taste of reality. You should also educate them on the difference between renting and buying a home, along with the mortgage programs out there that can help them purchase a home without having to put up a substantial down payment. When they know that there are options and when they learn about affordability (monthly income vs. debt), you can ensure they have realistic expectations of their future home.
#3 Start A Fund
Affording a home can prove difficult for people of all ages. If you are in the position to help your child afford their first home, go ahead and start a savings account or investment account in their favor so that you can start putting some money away to help them afford their first home. This money can be spent on their down payment, closing costs, or on the original moving expenses that will come along with buying their first home.
#4 Gift A Downpayment
Most programs today allow family members to gift some or all of the down payment for a person's home, but even if your child ends up choosing a loan that doesn't, they can still use the money in many other ways to make the first few years of home ownership a bit easier.
If your downpayment gift is capped or if the loan program does not allow your child to get assistance with the downpayment, you can instead gift them money from your savings fund that will help cover the moving expenses or initial repairs.
#5 Get Strategic With A Roth IRA
A Roth IRA might be the perfect way for your child to break into the elusive home buying marketplace. A Roth IRA can be funded with tax dollars up to $5,500, so long as the amount doesn't exceed your child's earnings. The money you put into the Roth IRA will grow tax deferred with withdrawals being tax free during retirement, which also makes it a fantastic retirement tool.
Your child is able to take a distribution of earnings of up to $10,000 from their Roth IRA for their first-time home purchase without any penalty or taxes so long as the Roth has been held for 5 years since being set up. If it has been less than five years, there are no penalties but they will have to pay tax. If you are a taxpayer with a child, a Roth IRA can be a useful approach.
If you’re looking for loan programs with downpayment assistance, we offer FHA loans at Horizon Lending Services.