How to help your kids buy a house

How to help your kids buy a house

Be sure you are helping out for the right reasons and don't dip into your nest egg.

By Michele Lerner of Bankrate.com

Traditionally (and when they could afford to), parents have provided cash to their offspring for down payments on homes. But in these days of tightened credit guidelines, some parents take bigger steps to help their kids become homeowners at today's low interest rates.

Three factors determine whether it's financially smart for parents to help adult children buy homes: the parents' finances, the kids' finances and the real-estate deal itself.

"The first rule of thumb is that parents should never get financially involved with their adult offspring unless they are adequately prepared to address their own needs and pending retirement, which may not be far down the road," says Guy Penn, principal and founder of G.M. Penn Wealth Management in O'Fallon, Mo.

Penn says while there's no one-size-fits-all answer to whether parents should help their offspring buy a home, it definitely is a bad idea to pull money from a retirement account to give assistance.

Jeffrey Ivory, a partner with Stonebridge Financial Partners in Bingham Farms, Mich., says, "If parents are giving their kids down payment money, they should be willing to lose that money and not get it back. If they are helping their kids by buying a home and renting it to them or by co-signing their loan, they need to have not only the liquidity for the down payment, but they also need to be certain they can pick up the mortgage payments if the kids cannot pay them."

Adult offspring finances

Parents should make sure they are helping their kids for the right reasons, Ivory says.

"If the kids can't get a loan on their own, the parents really need to know why not," Ivory says. "If the scenario is that your kids are going through a divorce or a job loss and you want to help them, tying them to a permanent location may not help. If they are dealing with the financial consequences of credit problems, helping them pay off their credit card debt may be more important than buying a home. But if you are helping a young couple with stable jobs who just haven't had time to save for a down payment, and you can easily afford to help, this could make sense."

Ivory says parents should ask their kids to pull their credit scores and show it to them, and ask to see their paychecks and credit card debt.

"If your kids are already struggling, then you are setting them up to struggle more if you get them into a house they can't afford," Ivory says.

Educating your kids

Ivory says parents should talk to their kids about the rules of thumb of homeownership, including keeping all total debt including housing costs to less than 38 percent of monthly income before taxes. Housing costs, including taxes, homeowners insurance, homeowners association dues, and principal and interest on the mortgage, should be less than 28 percent of gross monthly income.

"The No. 1 way a parent can help their children is to offer them the gift of knowledge," Penn says. "Parents rarely have serious money discussions with their children, and throwing money in their direction now may be doing more harm than good. Parents should be talking to their kids realistically about the hidden costs of homeownership such as utility payments, maintenance and repairs."

The real-estate deal

The simplest way parents can help their kids financially is with down-payment money.

"Lenders want to know if the money is a gift because if the parents are treating it as a loan, it will be considered a second loan on the home," says Dan Kruse, broker and president of Century 21 Affiliated in Madison, Wis.

Individuals can give $13,000 tax-free to another individual each year, Ivory says, so if two parents each give their offspring and their offspring's spouse the maximum, they can give a total of $52,000 tax-free.

Kruse says parents often buy a house as an investment and have their kids pay rent.

The parents can then sell the home to the kids when they are ready, keep it as an investment property or sell it to someone else," Kruse says. "You can do this with two separate transactions, or you can make a rent-to-own arrangement with the parents giving the kids a rent credit toward the purchase."

Ivory says a lease-to-own arrangement requires consultation with a tax professional as well as a lender, and must include a written contract.

Even within the family, financial planners say it is crucial to have everything in writing to make sure there are no misunderstandings in the future about repayment plans or the consequences of a loan default.

Parents with enough cash can lend the entire mortgage to their offspring, but this too should be in writing and include a reasonable interest payment. "Everyone needs to pay attention to the law and to the tax consequences of any financial arrangement," Ivory says.

Most financial planners view co-signing a loan as the worst option because of potential damage to the parents' credit and cash flow if the kids cannot make the payments.

Source: "How to help your kids buy a house", MSN Real Estate

5 Legal Tasks to Do When You Move

The Internet is full of checklists and resources to use if you are planning to move. There are packing timelines. There are lists of packing supplies. There are even directions on how to pack boxes.


But moving is much more than purging and organizing your personal affects. There are legal tasks you need to take care of too.

Here are 5 legal tasks to complete when you move:

1. Read your leases: Review your current lease to make sure you will not get into trouble for leaving. You are responsible for paying rent for the entire lease term, even if you have vacated the premises. If you need to move before the lease term is expired, read the lease to see if you can sublet or assign to a new tenant. Check your new lease for these terms before you sign it. And make sure you complete these tasks to protect your rights as a tenant.

2. Protect yourself with insurance: Thoroughly read any contract with a moving company before you sign it for delivery times and insurance coverage. Moving companies are required to provide some moving insurance. But you may wish to purchase more.

You should also consider renter’s insurance or homeowner’s insurance.
3. Notify your creditors: Update your address with all of your creditors to ensure you do not miss a payment. And be sure to complete a change of address with the United States Postal Service and request that your mail be forwarded to your new address.
4. Keep receipts if you are relocating for a job: You may be able to write off your expenses if you are required to relocate more than 50 miles due to a job change. Review the Internal Revenue Service’s requirements to qualify for this tax break.

5. Update your estate plan: State laws governing wills and estate plans differ. If you move to a different state, update your estate plan.

For more information, visit Findlaw.com.

Source: "5 Legal Tasks to Do When You Move", by Jennifer K. Halford, Esq., RISMedia

3 Tips to Sell Your Home This Fall

As temperatures dip and fall settles in with the promise of winter ahead, home owners need to pay extra attention to certain details in order to set themselves apart from the competition.


1. Maintain your landscape. Flowers aren’t exactly flourishing this time of year but sellers should still make the most of what they have. Adding fall flowers like mums to your front porch or deck is always a nice touch. More importantly grass should be cut at least once per week and leaves should be cleared as much as possible.

2. Keep your house warm. Prospective buyers will be turned off by a cold house, not giving it the chance it deserves. Spend the extra money to make your home as inviting and comfortable as possible. Also keep in mind that you don’t want it to be too warm because bundled up buyers will be uncomfortable and your utility bills will sky-rocket. I’d recommend keeping the thermostat set in the upper 60′s.

3. Let in the light. If your showing is during the day, open blinds, windows and drapes. If not, turn on all the lights in the home and brighten darker rooms by placing spotlights behind the furniture.

Fall is a great time to sell your home because a lot of prospective buyers are hoping to make a decision before the holidays. Take advantage of the fall market by pricing your home correctly and working with a licensed and experienced agent.

Source: "3 Tips to Sell Your Home This Fall" by Chobee Hoy, RISMedia

Prepare Your Home for Fall and Winter

Prepare your home for unpredictable weather conditions with our checklist for fall and winter home maintenance.
By Reader's Digest Editors  

With summer a fading memory, now’s the time to ready your home for fall and winter’s cooler temps and unpredictable weather conditions.

1. Clear out the gutters.
Remove leaves and other debris from your drainpipe and gutters to prevent clogging. In areas with cold winters, outdoor faucets should be drained in the fall.

2. Clean the fireplace and chimney.
You can clear out ash and charred wood from the fireplace yourself, but leave the chimney cleaning to a professional. Have the chimney cleaner check the damper to ensure it can be tightly closed to prevent drafts.

3. Check the heating system.
Do a survey of your home’s heating vents to make sure they’re not blocked or covered by furniture, carpeting, or curtains. Dust vents and clean all filters. Make an appointment for an annual heating system check-up.

4. Store air conditioners.
If you have removable window air conditioners, be sure to unplug them before taking them down. Dust and clean before covering or storing.

5. Check for drafts.
Stay warm, save energy, and reduce your heating bills this fall by examining windows and doors for cracks and sealing them to prevent drafts.

6. Put up storm windows.
If you have removable screens, now’s the time to clean, store, and replace them with storm windows.

7. Ready the water heater.
Prepare for cooler weather by draining the water heater and clearing out any debris that has settled in the tank.

Source: "Prepare Your Home for Fall and Winter", Reader's Digest