Should parents help their children buy their first home?

A lot of parents have a dilemma when it comes to whether or not they should help their children with buying their first home. They want to teach them about responsibility but they also want to help them get off to a good financial start. Parents often do not know which they should do. The best move is to help their children get into their home if they can afford to do so. Here are a few reasons why.

High down payment requirements

Buying a home today is no longer near as simple as it was a few years ago. You need to save up quite a big of money for a down payment. This makes it very difficult for a young professional to buy a home because it could take him years to save up enough to put down on a home. Parents could step in and give the down payment to their child which would make the dream of home ownership a lot easier.

Lowers the borrowing cost

It is also smart for parents to help children with the cost of home ownership because it will lower the amount of money that they need to borrow from the bank. This will lower the interest paid back to the bank and make it easier for a first homeowner to pay off the loan. A down payment from Mom and Dad will also increase the chances of the loan being approved since the loan amount will be lower.

Greater equity

Anyone who has done a home loan comparison recently knows that homes have dropped in value but they are still pretty costly. Most people that purchase a home have very little equity because they put so little down on the home. This can leave a homeowner underwater if prices take a turn south. Having the extra money from parents to put down on the home can greatly increase the equity that a young adult has in their new home.

Tough borrowing environment

It is much tougher to get a loan today than it was thirty or forty years ago and is not as simple as applying for health insurance due to the depressed markets. Many banks are not looking to lend money or take a chance on a young borrower. It helps to have the financial backing of an older established family member to help secure the loan. A parent can help a child secure a lower interest rate and more favorable loan terms because of their well established credit history.

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