If your child has graduated from college and joined the workforce, it's probable that he or she will be renting for a period of time. While many people get their start by renting and have a goal of eventually buying a home, it's ideal to be able to become a homeowner as quickly as possible. It's probable that your child won't have enough money for a down payment on a home, but you can help. Some parents loan their children money for this purpose, but if you have the financial means, you may wish to consider giving the money as a gift. Here are some considerations for doing so.
Figure Out What The Child Needs
Sit down with your child to talk about owning a home. It's important for him or her to understand the value of making this purchase early on in life, and you can offer to help with a gift. Talk to your child about his or her income to determine what the child can afford for a home mortgage payment, and then begin to discuss what these numbers mean in terms of the price of a home. In doing so, you'll be able to come up with a reasonable down payment amount. For example, many people put three to five percent as a down payment, which you can easily tabulate after determining the right price of a home for your child's financial situation. Discussing these numbers will show you exactly how much you need to give as a gift.
Encourage The Child To Save
In some scenarios, you might have a different approach to giving this gift. For example, you might say that your gift will amount to 80 percent of the down payment, but that you want your child to come up with the other 20 percent. Or, you might encourage your child to save for a year, and then you'll agree to match whatever he or she saves to give a total amount that is enough for a down payment.
Write A Letter For The Lender
Lenders will accept buyers using gift money for a down payment, but they want to be sure that the money is indeed a gift rather than a loan. Make it clear to your child that he or she doesn't need to pay you back, and then write a letter to this effect. The lender will definitely need a letter from you that indicates you don't require your child to return the money to you in the years ahead.