We know more than several people who did this. When their kids graduated, they couldn’t sell what they had bought…and their kids moved away. The parents didn’t want to be landlords to college students they didn’t know. A few actually took a loss when they sold.
My relative bought a condo unit when his S attended med school. The S lived there and they resold it for about the same price when he graduated. Many med students lived in that building, which had parking and convenient bus to the med school.
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I live in a college town and I would not want student rentals. In our town we have a law that makes landlords responsible for the students’ misbehaviors. Landlords will be fined if there are more than 2 or more complaints from neighbors against their tenants.
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Our plan, subject to change, is to have the kiddo qualify for the house independently. Once the kid has selected the house, qualified, etc, then we will indicate that we’ll contribute towards the down payment so that cash flow can be a bit easier, but the kiddo will have had to have sufficient discipline to save up a down payment and earn enough for it to be a livable monthly payment. The amount of assistance would likely increase if our kid spends less of the higher ed fund than budgeted.
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Banks need to know all debts and obligations the mortgage borrowers have to underwrite a mortgage for them. If the $$ was a loan, the bank will need to know the repayment terms. If it was a gift - great, but show the proof.
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I had a long conversation about this with my son. My son is living in SV with a baby and a dog. Housing costs are out of site there. Even with a loan, legalized, he would be the one essentially repaying me. I’m happy they have a home, especially as both work partly from home. Their apartment was just so expensive and cramped.
Between that money and the market decline, I keep on working in my 70’s I’m quite happy that I can work mostly by telehealth.
Oh yeah, because he was an “owner” and not a resident in med school, he was able to pay resident tuition instead of nonresident. That was huge savings too. All this was explained as incentive for relative to buy.
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This is what happened to us. When DS and his bride bought a house, we gifted them a large amount as a wedding gift to help them get started. We have also gifted each of our kids the federal gift tax exclusion for years. Much of his gifted money became comingled in joint accounts and assets and she walked away with half of everything.
We didn’t buy their house for them, but we did provide a private mortgage for the house to help them out. They owned the house and benefited from all the appreciation. We just served as the mortgage company. So that this loan would not be considered a gift by the IRS, we had to charge them a minimum amount of interest. Each month the IRS publishes the Applicable Federal Rate and the prevailing rate the day of closing is what we had to charge. The AFR is usually significantly below market rates and was ridiculously low in their case. Our lawyer helped us set this up and we had a recorded mortgage and security deed. He was fully on board with us doing the loan because it was divorce proof. They couldn’t sell the house without repaying us.
Like I said, we learned a lot from this experience. We were actually on the phone today with our attorney setting up grandchildren trusts so those gifts can never be split with an ex-spouse. Once bitten, twice shy.
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We helped two of our kids with houses. One was married and just had their 2nd child. They were in a small ADU in HCOL city, and seriously looking for a larger house. They found a very nice house in a cheaper area with a very long work commute. We gifted part of the down payment to help them avoid PMI. We had to sign documents specifying that these were gifts from my wife and I to child and spouse as part of the mortgage loan documentation.
Another son decided to try to find a house when he started graduate school. He found the cheapest house close to campus. We gifted him part of the down payment to help avoid PMI. We had to provide gift statements for this mortgage process also. His monthly payment was the same, or even cheaper than renting in the area. He completed school and sold a couple years ago, and made money, though I think he would have been happy to break even.
My wife and I decided that we could help our kids with the housing, and we were comfortable with gifting money to our child’s spouse.
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My daughter and son in law bought a fixer upper (an understatement, at best) in a very desirable neighborhood, where most houses are sold before they are listed. We gave them the money to do the fixing up, which involved gutting the house completely, down to the studs. My H is in the business so he, daughter & son-in-law did 90% of the work. The house is now worth over twice what they paid (an updated house in the neighborhood recently cracked the $1M mark).
The agreement was that we would lend them the money and when they eventually sell, they’d pay us back, but we don’t intend to collect on that. We intend to do something similar for our younger daughter, when she is ready.
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I have been thinking when my S has saved enough to buy a house and is ready to settle, I’d help with the downpayment (did not pay much at all for his higher education, but did so for younger D).
But …
Yikes … I was thinking of like $25k to help with a downpayment. $100k??? Is that the average these days?
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20% to avoid pmi, starter homes here are around $500,000.
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Yes that makes sense - it’s been so long since I bought a house (and was not that involved when hub and I did it) that I didn’t remember the 20% part!
For my situation, I’m agreeing w/others that kid would have to be financially prepared to buy, and parent contribution would be something like a percentage that helps them close the deal, etc. (otherwise it’s - in my view - too much of a financial undertaking for them & might set them up for failure). At least I have a more realistic perspective on how much of a contribution $25k might be, lol.
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I remember buying our home in 1997, $180,000 and my parents gifted us part of the down payment so we didn’t have to pay the pmi. My adult daughter and engaged friend were here and discussing home buying today and the figure of $100,000 came up as a down payment (we are in northeast nj, daughter’s friend is renting in Boston with fiancé). Seems like such a large number for recent grads.
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I am still deciding. But DD knows she will be getting a prenup to protect her current assets and any future gifts from me. I’m leaning towards gifting the downpayment if she lives in a high COL area or gifting a starter home out-right if she lives in a lower COL area. I do not want my name on the deed or to hold the mortgage.
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Exactly…our kid’s townhouse (less than half the size of our first house) cost a LOT more. But he bought at the right time and his monthly payment is less than ours was!
This is definitely on our radar for the future. We have financial advisors we’ll consult when the time comes, but I’m wondering about the gift tax. What are people’s experiences with that in this process?
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We gifted our kids some $ to help with their first house. But, IIRC, we gifted our other s $ too. He wasn’t buying a house but he was getting engaged at the time older s was buying a house. Today is the sale/closing of that house (older s and family moved to a new home for better schools and more room) and what happened yesterday—- an earthquake!!!
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Yikes! Was this the San Jose earthquake?
But congrats on your respective kids’ milestones!
Were there tax implications of your gifts?
Thanks, @inforapound. Yes, it was the South Bay (San Jose) earthquake. Fortunately no damage. Both s’s live in the Bay area and texted/joked about the earthquake and maybe “letting” an old tv fall 
. Older s said the only thing he felt was the app buzzing on his phone that alerts them to an earthquake (its called “my shake”). No, we had no tax implication for the $ gift. We do have something set up a loan through our Schwab account if he needs it (I think his in-laws did that for them as a bridge loan while they temporarily owned 2 houses in the SF area!!!. But after todays closing they should have the $ to repay that loan. I admit I had to laugh when someone said to buy a house for kids if you have $500K. Wouldn’t work in SF!
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