6 Things Parents Should Keep in Mind When Helping Their Child Buy a Home

If you're thinking about helping your child buy a home, it's important to approach it carefully to ensure everything goes smoothly for everyone involved. Here are six key things to consider:

1. Communicate with the Whole Family

Before you step in to help with a down payment, it’s important to talk openly with all your children (if you have more than one) and any other family members who might be impacted. This can prevent misunderstandings or hurt feelings later.

2. Avoid Extra Costs with Mortgage Insurance

If you're able to help your child reach the 20% down payment mark, you can save them from paying for mortgage default insurance. The closer their down payment is to 20%, the lower the insurance premiums will be—and often, the cost of insurance is added to the mortgage, which increases their monthly payment.

3. Think About Taxes

If you don’t have cash sitting around and need to sell an investment to help with the down payment, be mindful of any taxes you might owe. If you sell an asset that’s appreciated in value, you could face capital gains tax. This means you may end up giving less to your child than you originally intended, so it’s good to plan ahead.

4. Keep Things Fair

Helping one child with a down payment could create tension with your other kids, especially if you don’t offer them the same support. It’s important to think about whether your other children will feel left out or if they might need help as well. Clear communication and fairness are key—this is where talking openly with your children about your plans can help avoid any issues.

5. Plan for the Unexpected

Unfortunately, relationships sometimes don’t last. If your child is buying a home with a partner, it’s worth considering a legal agreement that specifies what happens to the down payment or any gifts in the event of a breakup. This can protect both your child and the money you're contributing.

6. Small Contributions Can Add Up

Remember, helping your child doesn’t always mean handing over a big lump sum. You can contribute gradually by adding to their first home savings account or tax-free savings account over time. These smaller, ongoing contributions can add up and make a big difference when the time comes to buy.

By considering these points, you can help your child in a way that’s thoughtful, fair, and financially responsible for everyone involved.