How to Help Your Adult Children Buy a House
With the price of homes as expensive as they are these days, it can be tough for anyone to get into the housing market. Young adults who are just venturing out of their parents’ homes in hopes of getting a place of their own typically face sky-high real estate prices. And those who are graduating college typically have a huge student debt loan to pay off on top of all other living expenses.
It can be a big challenge to save up enough money for a down payment on a home, let alone all the closing costs associated with buying a house, the furniture needed to outfit the place, and the ongoing operating fees.
Let’s face it: being financially capable of buying a home when moving out of a parent’s home can be a major financial feat.
In many cases, young adults need their parents’ help to secure a home and a mortgage. Doing so can give them a big head start in life. An increase in housing prices and mounting student loan debt can be major obstacles that parents can help overcome.
But how can parents help their grown children buy a home when they’re trying to juggle their own mortgage and daily expenses? Of course, helping adult children buy a house is no simple feat. You’ll definitely want to carefully plan your strategy to assist your kids when they’re ready to fly the coop.
Here are some suggestions to follow to help your kids get into the housing market.
Buy a Home and Let Your Child Rent it From You
Many young adults end up renting when they leave their parents’ homes simply because they do not have the financial resources or credit history to secure or afford a mortgage. But rather than them paying rent to a stranger, they can rent from you instead.
If your current finances permit, consider buying a home for your child in your name and renting it out to them. While this is certainly a huge financial undertaking for you, you may be eligible to deduct your mortgage interest, property taxes, repairs, and certain home improvements come tax time on your “rental” property. Plus, the rent that your child pays you can cover the mortgage.
Buy a Home Together
If your adult child is working and has some level of credit established, consider buying the home together. Two working parties should have an easier time securing a mortgage for a home than a single working individual. If you take this route, you’d each share a certain stake in the home, depending on how you divide the equity.
If at some point, your child is ready to take over the house on their own, you’d sell them the share that you had in it. Just make sure that your child is financially capable of holding up their end of the bargain in terms of paying their share of the mortgage and all other operating expenses.
Co-Sign the Loan
Your adult child might have a steady job and the money to comfortably cover the mortgage as well as a hefty down payment, but that doesn’t necessarily guarantee mortgage approval. Lenders will want to check out their credit history, and if your child doesn’t have any credit built up yet – or has bad credit – it might be tough or even impossible to secure a mortgage.
If that’s the case, you may have the option to co-sign on the loan. In this situation, you would sign your name on the mortgage along with your child’s. As a co-signer, you would be responsible for making the mortgage payments in the event that your child defaults on the loan.
You’ll want to make sure that your child is responsible enough to make the payments on time and in full every month and that you have the finances available in case you ever have to step in to take over the home loan.
Cover Closing Costs
On average, buyers spend about 2% to 5% of the purchase price of their home in closing costs. This can amount to a hefty bill. If you can afford it, consider helping your child come up with the money needed to cover these costs, which typically includes appraisal fees, mortgage application fees, home inspections, homeowner’s insurance, and property taxes.
Give a Down Payment as a Gift
If you have access to cash – or have sources that will allow you to liquidate your money – consider gifting your child the down payment for a new home.
According to the National Association of Realtors, nearly one-quarter of millennials used a monetary gift from their family or friends as part of their down payment.
But giving your child money to cover their down payment is not as clear-cut as handing them a wad of cash. There are rules that need to be followed in order to provide a paper trail proving that the money being provided is indeed a gift to be used towards a down payment and not a loan. Such rules may vary from one lender or mortgage product to the next.
If the money being provided is classified as a loan, your child will have to pay taxes on it. On the other hand, taxes on gift money can be deferred up to $15,000 per child (or $30,000 for couples gifting their adult children). Be sure to speak with a tax specialist to determine whether or not any taxes apply in your situation.
Ideally, the gift should be made at least a couple of months in advance of the mortgage application. There might also be some paperwork to sign verifying that the money is a gift and does not need to be paid back.
The Bottom Line
If you can swing it financially, you’d be doing your adult children a huge favor by helping them out when it comes time to buy their first home. While renting is always an option, buying and owning property comes with its own unique benefits. Getting into the market sooner rather than later can help your children start building equity and can even help them establish strong credit with every mortgage payment they make.
What California Homeowners Should Know About Earthquake Insurance
Earthquakes can have devastating effects. And considering the fact that there are fault lines throughout the Golden State, this west coast state is prone to earthquakes more than most other states in the US.
You already have homeowner’s insurance (or at least you should), but should you take out an extra policy to protect against damage caused by earthquakes? Before you do, be sure to consider everything about these types of policies.
Earthquake Insurance Isn’t Mandatory
Homeowner’s insurance is required if you plan to take out a mortgage on a home. Lenders want to make sure a home is insurable before they extend a loan. But not every homeowner necessarily needs earthquake insurance. Depending on where you live, earthquakes might be a rarity, while they may be more commonplace in other parts.
Only you can decide whether or not you should get earthquake insurance, as it’s not a mandatory type of coverage that homeowners are required to take out. That said, California is one of the states in the US that is prone to earthquakes – especially along fault lines – so it’s something that may be worth considering.
Coverage Required Depends on Several Components
The amount of earthquake insurance that you take out will depend on certain things, such as the value of your home, the cost to rebuild it, and the value of your personal possessions. Consider the value of everything that may be at risk when determining how much insurance to take out.
Coverage is Expensive
Insurance itself is not exactly cheap. But earthquake insurance, in particular, is quite expensive compared to standard policies. And the cost of coverage becomes even more expensive in earthquake-prone regions. You can expect to pay an average of $3.50 per $1,000 of coverage in California. So, for a home that’s worth $500,000, the annual premium would be $1,750.
Several Factors Influence Rates
The above figure is an average ballpark amount you can expect to pay. But the actual cost of your policy depends not only on the value of your home and the cost to rebuild it, but also the following:
- ZIP code
- Proximity to fault lines
- Age of the home
- Number of stories
- Building materials used
- Soil type
Deductibles Need to Be Paid First
Just like any other type of insurance policy, a deductible will need to be paid when you file a claim. The amount of your deductible will sometimes depend on what you decided on when you first took out your policy, if your insurance provider allows you to choose. For instance, you may have chosen a higher deductible amount in exchange for a lower annual premium. Or else, a lower deductible amount will mean a higher premium.
Otherwise, many insurance companies offer set deductibles based on the overall policy limit, usually somewhere in the range of 15%. That means that if you file a claim for a $300,000 policy, you would have to pay a deductible of $45,000.
Consider what your deductible is and the extent of the damage done to your home as a result of an earthquake before you decide to file a claim. If the damage done is minimal, it might not be worth paying the deductible and seeing your premiums increase as a result. On the other hand, extensive damage will likely be worth tapping into the policy you took out to protect your finances in the event of an earthquake.
Possessions Are Covered to a Set Amount
With earthquake coverage, your personal belongings are generally covered up to a set dollar figure. Let’s say your limit is $5,000, which would be fine if the damage done to your possessions doesn’t amount to any more than that.
But this can be a bit of an issue if expensive entertainment systems, electronics, and other high-ticket valuables that are valued much higher than $5,000 are broken. If you have a lot of valuable goods in your home, consider taking out more coverage for contents.
Exclusions May Exist
Not everything will necessarily be covered in an earthquake insurance policy. Certain things may be excluded, so you’d be well advised to find out what is and is not included in your policy when you take one out.
Examples of things that an earthquake policy may cover include:
- Repairs to your home and any attached structures
- Furniture
- Clothing
- Additional living expenses if your home is uninhabitable
Things that an earthquake policy probably won’t cover include:
- Fences
- Pools
- Separate structures
- Vehicles
- Fine china and other delicates
- Masonry
- Sinkholes
- Fires caused by an earthquake
- Floods caused by an earthquake
Discounts Exist For Retrofitted Homes
If you’ve taken precautions to ward against damage caused by earthquakes, you may be eligible for a discount on your policy. For example, bolting down appliances, securing the home to the foundation, and bracing interior walls can all help to keep the structure standing despite an earthquake. Whatever you do to solidify your home’s structure, you can reap the rewards with a lower premium.
The Bottom Line
Earthquake insurance is by no means required. But considering the state in which you live, it might be a viable policy to think about. That said, the expenses need to be considered, as does the type of coverage that you’ll get. Be sure to speak with an insurance provider and ask plenty of questions about these types of policies before you take one out.
Budget-Friendly Ways to Boost Curb Appeal
If you want to attract buyers to your listing, staging it is a great way to start. Obviously, the interior of your home needs to be show-stopping, but so does the exterior. In fact, curb appeal plays a key role in how quickly your home will sell.
Consider this: buyers will first see the outside of your home before they make it to the front door. As such, you want to do what you can to make sure your home is inviting and attractive enough to entice buyers to want to see what’s inside.
As important as boosting curb appeal is when listing your home for sale, you don’t exactly have to break the bank to make improvements. In fact, there are several affordable ways to enhance the look of your home from the exterior.
Wash Everything
Your windows, walkways, driveway, porch, deck, siding, brick walls, and even your mailbox could probably use a good thorough wash before you plant your For Sale sign. If you have one (or can borrow one), take a pressure washer to the surfaces of your exterior. You’d be amazed at what a difference a few sprays can make.
Make Minor Repairs
Whether the gutters are a little bent, a light bulb is burned out, or a couple of bricks are crumbling, these little issues can be noticeable to buyers. If you have the know-how, make these repairs yourself. Or else, call a local handyman to make these updates for you.
Paint the Front Door
A can of paint will only cost you a few bucks, but a new coat of paint can make on your front door – and the overall look of your home’s exterior – will make it look like you’ve spent thousands. Choose a color that goes well with the rest of your home’s color scheme while making your home stand out, in a good way.
Install a New Door Knob
If the hardware on your front door is looking a little tired, change it up. It doesn’t cost much to buy yourself a new door handle, but such a seemingly subtle change can really update the look of your front door.
Add a Welcoming Doormat
Not only does a doormat with a cheerful slogan make guests (and buyers) feel welcome, it can also help to spruce up your home’s exterior.
Update Your Mailbox
Another seemingly insignificant exterior detail is your mailbox. If yours is getting up there in age – or at least looks like it is – consider either updating the one you have or swapping for a completely new one.
Install New House Numbers
You can quickly boost curb appeal with brand new house numbers, especially if the ones you have right now are old and worn out. Go for finishes that match well with any exterior lighting you may have.
Add Home-Made Shutters
While some shutters can be expensive to install, you can add faux shutters at a fraction of the price. And the home improvement store that you get them from will even cut them to size for you.
Edge Your Walkway
If your front yard has a walkway leading to the front door, spruce it up with some edging. You can literally choose from a myriad of materials to use for this job, including flowers, interlocking stones, or Riverstone to add some definition.
Cover Exposed Foundation
Many homes have a portion of their foundation exposed underneath their siding or brick. If that sounds like your home, cover up that exposed concrete with some easy-to-apply stone panels.
Trim and Weed Your Lawn
Probably the cheapest thing you can do to improve your lawn is to make sure the grass is trimmed and the weeds are plucked. Just be sure that you don’t let the grass or weeds overgrow while your home is on the market.
Plant Some Flowers
A common yet effective way to boost curb appeal is to add some colorful flower beds to your front lawn. They’re easy to plant and can be added in such a way to make your landscaping as unique as you’d like it to be.
Install Flower Boxes Under Windows
Don’t limit your flower planting to just the ground. Adding flower boxes under window sills can be an affordable way to add a pop of color to your home’s exterior.
Add Potted Plants
If you don’t feel like planting anything directly into the ground, you can still add plenty of natural beauty with potted plants.
Add Patio Furniture
If the space permits, consider adding a couple of outdoor patio chairs to flank your front door and spruce up your front entrance. If you really want to save some money, consider buying from a second-hand store, repainting the frame of the chairs, and adding your own cushions in a bright and cheerful color.
Update Exterior Lighting
Don’t underestimate the power of exterior lighting to curb appeal. If your lighting has seen better days, consider updating it. Even just a couple of exterior lights on either side of your front door or garage should do the trick.
The Bottom Line
Curb appeal plays an important role in the overall staging of your home. If you want to attract as many buyers as you can and get a decent offer quickly, boosting your curb appeal is a must. And with these ideas, you can make a huge difference in your home’s exterior with very little money.
