Co-owning a House With Your Child: A Guide

The concept of co-owning a house with your child makes a lot of sense on paper, and it can be an excellent way to provide financial stability for a family member. But it can also be a complicated legal issue that requires a lot of forethought and analysis before you take this rather dramatic step.

There are several ways to assist your children when it comes time for them to purchase a home – you can buy a house with your child, sell your current home to them, give them money to fund their home purchase and more. But it’s important to know that co-owning a house with your child requires careful planning and consideration for matters like probate court and taxes.

How to buy a house with your child

If you want to take the step of helping a family member buy a home, here are some critical points to keep in mind.

1. Consider your options

As you consider buying a house with your child, remember there are plenty of ways to help your offspring find a new home without actually appearing on the home’s title. These can include:

• Selling or gifting a house to your child (also known as a non-arm’s length transaction). It’s important to note that the IRS can become concerned and also trigger additional red flags if you discount the property enough to keep the proceeds under the capital gains exemption. Normally, the transfer of property from one person to another – for nothing or less than full value – requires payment of the gift tax.
• Gifting money for a down payment on a house, which will require providing a gift letter to your lender.
• Becoming a co-borrower or co-signer on the loan (details below).

2. Get preapproval

When anyone is buying a house, it can be extremely beneficial to get preapproved for a mortgage. This means sellers will take your offer more seriously if they see you’ve done your due diligence, and it will give you increased confidence because you’ll know exactly how much you can afford. Given the complicated dynamics of buying a home together, anything that can lessen the tension is beneficial.

3. Decide on becoming a co-borrower or co-signer

You can become a co-borrower or a co-signer on the loan, but it’s important to know the difference between them.

Should you buy a house with your child?

Under the right circumstances and with the correct planning, helping your child purchase their dream home could help them achieve a greater chance of financial stability than they could realistically achieve on their own.

But still, this endeavor isn’t without its risks. For some, playing a financial role in your adult child’s life may lead to an unpleasant strain on your relationship. Every family is different though, so it’s important to ask yourself the following questions before you commit.

• How will this affect your relationship?
• How will this affect your own financial standing?
• Is this a long-term or short-term commitment?
• Whose name or names will be on the title?
• Who will be responsible for making the mortgage payments?

Helping your kids without spending money

There are ways to offer other financial assistance if you want to help your child, but you also want to avoid the nettlesome complications of co-owning a home with them. These ways include:

• Helping them take critical steps that can help all first-time home buyers. Such steps include:
  1. Ensuring they have enough money for a solid down payment
  2. Making a budget to keep costs in check
  3. Being aware of closing costs

• Leveraging your connections in real estate by engaging with your network of real estate professionals to gain valuable insights and guidance on the local housing market and current property listings. Your connections could also help you identify off-market or pre-listing properties, or just provide knowledgeable professionals – such as contractors or home inspectors – who can help with the homeowning process.
• Attending open houses with your child can not only be a good way to connect, but can also provide good insight into what they may – or may not – want in their future home.
• Walking your child through the appraisal process is a good way to impart real-estate knowledge and also help them learn about the ins and outs of homeowning.
• Being your child’s support system can offer welcome assistance. After all, the road to homeownership is long and bumpy – and if there’s anything that matches the financial toll of the process, it’s the equally overwhelming emotional toll. So perhaps one of the best ways you can help your child is by simply providing the support system they need.

The bottom line: There are many ways to help your child purchase a home

In the end, there are many ways to help your child become a first-time homeowner. Financial assistance would likely be welcome, of course, and you can become so closely involved as to be a co-signer on the mortgage. But there are other, less complicated ways to offer aid, ranging from connecting them with friends in the real estate business to simply offering emotional support.

Another beneficial step would be to help your child connect with an agent when it comes time for them to buy a house. After all, there’s no substitute for experience.

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