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5 Ways to Use Your Home Equity to Help Family Members Buy a Home Thumbnail

5 Ways to Use Your Home Equity to Help Family Members Buy a Home

With many Americans sitting on an increasing amount of home equity, some are now leveraging that asset to help younger generations of their family get into homes.

Many families are watching their kids try to take on today’s daunting real estate market. Even with good income, it's hard for a younger buyer to compete with all-cash offers and fix-and-flip investors.

Rising rents, student debt, and inflation have all slowed down the process of building a large down payment. Indeed, the National Association of Realtors notes that close to 90% of home buyers under the age of 40 finance more than the traditional 80% of their home purchase.

How, then, to apply your financial resources to help your kids get into their first home?

Here are 5 great approaches:

- A down payment gift from your equity. By tapping into equity, you can generate cash to make a large down payment gift. According to the National Association of Realtors, 23% of first-time buyers used gifted funds. Gifts are tax-free up to $16,000 per person per year (for 2022). Above that, you have to file a gift tax return. Talk to us first about how to do gifting correctly!

- Co-signing their mortgage, and providing some of all of the down payment from your equity or savings. The upside is that it can put them in a much stronger position to buy, offset credit issues they may have, and help them get a bigger loan. Expect to be liable for payments if they fail to make them (impacting your own credit score), and plan to refinance to get off the mortgage, later on.

- Your home equity could also help you buy a multi-unit property together, where they could live and rent out one unit to help offset their mortgage payments.

- Use your home equity to help renovate a fixer-upper that they actually can afford. Remember, there's often less competition for these “unloved” homes!

- If your situation permits it, you can buy a house for your child to live in and work out a process whereby you gift them a portion each year (to stay below gift tax limits) and also have them buy it back from you when they have saved enough.

Bottom line, built-up equity gives you options.

We can show you flexible programs that can help you tap into your home’s equity. All this takes careful planning, so give me a call to help you build a great strategy for helping your kids on the road to home ownership!

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