A recent trend has emerged: baby boomer parents helping their grown kids purchase a house. Even though the housing prices are low, the largest problem is the grown children not having enough cash to make a down payment.
Purchasing a home with cash, or at least having a significant cash deposit, helps expedite the sale. Even if grown kids have good-paying jobs, they often use every bit of it to pay bills, credit card debt, and student loans, leaving nothing in their savings account for a down payment.
For those adults who work freelance jobs or multiple part time jobs, they also have difficulty getting a mortgage because the banks prefer to see a steady paycheck. This is where mom and dad can help by supplying a substantial amount of cash so the banks take on less risk whether the home is brand new or a foreclosed home.
Of course, even those with the best of intentions can find some pitfalls of loaning money to their children. Some baby boomers put their own budgets or retirements at risk to help the kids, thus making the loan a hardship. Often times the kids don’t have a firm grasp of their own budget and what they can afford on a monthly basis, thus putting them at risk of losing the house when the payments become too steep.
Other disagreements can also arise, such as determining if this money is a gift or a loan. Open communication and even a written contract between parents and children can help avoid bad feelings or forgetfulness when it comes time to pay the money back.
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