As a parent, you may see the challenges facing first-time home buyers today and want to help your kids buy a home. 

First-time buyers today are facing many conundrums, including rising interest rates, high home prices and the need for a greater inventory of homes.

As a result, parents may decide to step in and help their adult children be successful in their first home purchase experience.

In this guide, we’ll explain the steps that parents can take to help their children with buying a home, including understanding their mortgage options and ways to offer financial assistance.

Help them understand the loan process

The most valuable assistance parents can offer to their adult children is sharing their knowledge of the mortgage process.

Even if you aren’t well-versed in the topic, it can help to explain your own experience purchasing a home, including:

• The loan options that were available to you
• How long the process took
• What information you needed to supply
• How you found a mortgage lender

If you still have a mortgage, you can show them your documents and explain your process for paying off your mortgage.

It may have been several years since you first got your mortgage, so you also can do research with your child on the current loan options available and what may work best with their situation.

The most popular loan options today include:

• Conventional mortgages
• FHA loans
• VA loans (for military veterans)

First-time buyers today also may want to take advantage of loan options that have made a comeback to help make homeownership more affordable in today’s market, including a 2-1 buydown or an adjustable-rate mortgage.

Teach them about budgeting and planning

Help your adult child understand the additional costs associated with a mortgage and home purchase, including:

• Purchase price
• Down payment
• Closing costs and fees
• Private mortgage insurance (PMI) or mortgage insurance premiums (MIP)
• Taxes
• Homeowner association fees

Additionally, they will need to budget for an emergency fund in case of unexpected home repairs.

While a 20% down payment used to be the standard, today’s conventional mortgages accept as low as 3% down, depending on your credit score, and FHA loans accept as low as 3.5%.

Emphasize the importance of a good credit score and report, and direct them to look at their free annual credit report.

Generally, the higher your score, the better your loan options, along with the possibility of a more favorable interest rate.

Determine your options for financial assistance

Once you’ve helped your children understand their mortgage options and budgeting needs, you can determine what you’re willing and able to contribute to help them achieve their homeownership goals.

Let’s take a look at the following options for parents to consider.

Co-signing

If your child has a poor credit score or is struggling to qualify for a mortgage for another reason, you can help them secure a loan by co-signing the loan.

Remember that even if the plan is for your child to be the sole person paying the mortgage each month, the responsibility will fall on you if they are unable to make the payments.

Be sure to discuss the full range of drawbacks with a trusted mortgage lender prior to signing. If your child defaults on the loan, it could harm your credit and your financial health.

Gifting a down payment

Gifting money toward your child’s down payment is a great way to help them afford their first home without potentially putting your financial health on the line.

Make sure you understand the gift allowance for the type of loan your child is applying for and discuss with a tax specialist the guidelines involved with a gift.

Loaning them money

If you or your child are uncomfortable with giving money or co-signing, you could offer to loan them the money to purchase a home.

Again, discuss specifics with a financial and tax advisor so you understand the tax implications if you fail to charge an interest rate depending on the sum of money.

Sell your home to them

If you’re looking to downsize your property, consider selling your home to your child.

To ensure you move through the process correctly and meet all requirements, make sure to treat this transaction like you would with any seller.

While the idea is likely to give them a deal on the home, you’ll need to carefully consider the tax implications and ensure the transaction is executed correctly.

Research loan assistance programs

If you’re unable to provide financial assistance to your child, you can help them look into loan assistance programs to help them achieve their homeownership goals.

There are many down payment assistance programs available to first-time buyers nationwide. There are also programs for people with disabilities, veterans, buyers with a qualifying occupation and loans specifically targeted to first-time buyers, such as FHA loans.

Find the right mortgage lender

The best way to ensure your child’s homebuying process goes as smoothly as possible is to help them connect with the right professionals.

Early on, find a trustworthy, reputable mortgage lender who can help you and your child navigate the entire mortgage process from start to finish and who can act as your advocate and partner throughout every step.

Compass Mortgage treats you like family

We can help you find the creative solutions you need to help your child get into their first home.

The first step in the mortgage process is pre-approval, which will help your child see the full scope of loan options available and help them understand what they can afford.Our Get Commited® program is more than just a standard pre-approval: it’s a fully underwritten loan commitment that locks in your interest rate before you even find your home and holds as much power as a cash offer.

Help your child apply with Compass Mortgage today.

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