Parents can take a number of steps to help their offspring purchase their first homes. They can donate money for a down payment, co-sign on a mortgage or pay off their student loans.
But Mom and Dad also can get in the way. For one thing, they can offer advice that was sound when they bought their own house years ago, but no longer holds water in today’s market. And they can insert themselves into the entire process, instead of letting Junior or Missy make their own decisions.
But worst of all, says Massachusetts real estate pro Dana Bull, well-intentioned parents can “steamroll” all their children’s ideas.
It’s not that adult children don’t want their parents’ input and advice -- they do, says Bull, who hangs her shingle with Sagan Harborside, a Sotheby’s International Realty franchise. But all too often, she says, parents “end up overstepping their bounds.”
Bull was 22 and working in the architectural field when she bought her first place, a condominium apartment in a circa-1784 house, with her then-boyfriend (now husband). Her parent’s didn’t approve: They had always purchased new homes, and worried that their daughter was making a big mistake buying such an old place.
“They were apprehensive,” Bull recalls. “They were concerned that the old structure could have plumbing and electrical issues, and that I was making such a major decision at such a young age. They also were anxious about the fact that my boyfriend and I were buying together: ‘What if things between us went south?’”
The couple went on to buy a number of properties together, and at age 25, she transitioned full-time into real estate. Now 30, she works with a lot of younger buyers, and says she often “feels like a therapist” when their parents become too involved.
She sees it mostly when Mom and Dad tag along during house-hunting outings, and again during the home inspection.
“The kids may love the house, but if the parents don’t approve, the kids freeze. All they really want is their parents’ approval,” Bull says. “The parents have good intentions, but their kids are adults who know what they want and they are fully capable of making their own decisions.”
As Bull sees it, “the best thing parents can do is to provide a framework so their children can make sound decisions.”
Parents need to realize that certain things are beyond their level of expertise, Bull advises. “They are far better off suggesting that the kids find experts in their respective fields. That means urging them to build a good team of real estate professionals, starting with their choice of agents and including solid, trustworthy lenders, home inspectors and possibly even lawyers.
“Having the right people who can advocate on your behalf about the things you and your parents don’t know much about is key,” the Massachusetts agent says. “Young buyers love the idea of Dad coming along on the home inspection, and they value his opinion. But the real expert is the professional.”
Stepping back isn’t easy for some parents, who often fear their adult children will make the same mistakes they did. But that’s the way “kids” of any age learn -- just the way Mom and Dad did.
Still, if you want to be in the picture -- and are asked to be -- then be involved from the get-go, Bull suggests. “Asking ‘Why didn’t you think about this or that?’ isn’t helpful, especially in the middle of the process. If you want to be part of the journey, do so from the beginning.”
There are any number of ways parents can help their children. But co-signing on a loan isn’t the best choice: If your name is on the mortgage, you are just as liable for the payments as your children. Consequently, if they should falter, you’ll have to make the payments, or your credit will be impacted.
If you can afford it, a monetary gift to help with or cover the entire down payment is a better option. But don’t make it a loan, even secretively. The lender will want a complete paper trail of where the money came from, and the borrower will have to state in writing that the money need not be paid back.
Far and away the best thing you can do for your children is to be sure they pay off their high-interest debt as quickly as possible before they even think about buying a house.
“If parents are going to help their children financially, they should start with high-interest debt that might be accrued during and after college,” says Thomas O’Shaughnessy, head of research at Clever Real Estate, a nationwide referral service that connects consumers to agents.
Clever’s research shows that 48% of undergraduates with student debt plan to delay homeownership by seven years. Moreover, they are eight times more likely to add a personal loan to their debt load, and seven times more likely to be using high-interest credit cards at the same time.
Worse, perhaps, 56% of college students don’t know the interest rates on their student loans. And most college students underestimate, by five years, how long it will take to pay off that debt.
So, while parents can help their children with some or all of their down payment or by joining them on a mortgage, O’Shaughnessy advises, they are far better off being certain the kids are in a financially stable place to afford their monthly mortgage payments.