Smart Ways Parents Can Help with a First Home Purchase

Buying a home is an exciting milestone, but for many young buyers, today’s housing market can make homeownership feel out of reach. Rising home prices, higher interest rates, student loan debt, and saving enough money for a down payment and closing costs often mean first-time buyers need extra support. The good news is that parents (and other family members) can play a meaningful role in helping their children achieve homeownership.

First, and most obviously, parents can provide a cash gift to help cover their child’s down payment and/or closing costs. A letter detailing who the gift is from, their relationship to the borrower, the amount of the gift, and that there is no expectation of repayment would be needed to document this gift.

We’ve also seen scenarios in which the borrower’s most significant hurdle to qualifying is their debt-to-income ratio. In these scenarios, we’ve seen parents step in to help pay off credit card debt, student loans, or car loans to lower their child’s debt-to-income ratio. We’ve also seen cash gifts from parents covering other expenses that often accompany home buying, such as home inspections, repairs, furniture, or moving.

Another way we’ve seen parents help their children purchase homes without involving cash is by serving as non-occupant co-borrowers. This means the parents are on the mortgage for the home with their child, but they do not live in the home. This option can help a buyer qualify for a higher loan amount or receive more favorable terms, because their parents’ income and credit are considered, alongside their own. However, parents should understand that, as non-occupant co-borrowers, they are equally responsible for the mortgage and that the loan may impact their own credit and borrowing ability.

Lastly, parents can help support their children’s homeownership goals by instilling responsible credit habits from a young age. A good credit score is important for qualifying for a mortgage and for securing lower interest rates. So, by teaching your child good credit habits, such as maintaining low credit card balances and paying off their cards each month, you will help them achieve more affordable homeownership in the future.

If you can help your child or family member buy, or you intend to buy and have a family member willing to provide support, this can help overcome the obstacles many first-time homebuyers face. If you are in this position, don’t hesitate to reach out to us so that we can discuss how family support can best be leveraged in your unique scenario to achieve your or your child’s homeownership goals.