Help Your Kids Become First-Time Homebuyers In 2015
Personal Finance Action Plan For 2015
Homeownership remains a keystone of the American Dream. But should you help buy a house for your children?
It's a weighty question for those shaping personal finance strategies for 2015. Here's how to decide and maximize the value of what you do.
Options abound, from buying a house outright for a child or grandchild to gifting part or all of a down payment and/or co-signing a mortgage. But parents and their kids who want to be first-time homebuyers need to understand mortgage and tax rules about gifting, and everyone must be realistic about thecosts and risks of homeownership.
"In today's world, down payments can be difficult to amass, and transfers from family can be appropriate," said Stuart Gabriel, director of UCLA's Ziman Center for Real Estate, in Los Angeles.
But it's important that a first-time homebuyer be qualified and ready to own before a purchase, he says.
Buy Now?
Is it a good time to buy? Market watchers looking at the housing forecast for 2015 say yes.
Rents are high; mortgage rates are low — averaging 3.87% for a 30-year fixed-rate mortgage in the latest survey by government-sponsored housing finance enterprise Freddie Mac. And although home prices have come up, in most places they're still below their peaks.
"Buyers sometimes get hung up on the house price, but in the long run the interest rate is often way more important," said Elizabeth Weintraub, a broker associate with Lyon Real Estate in Sacramento.
According to real estate website Zillow (NASDAQ:Z), homebuyers making the nation's median income and buying a typical U.S. home now spend 15.3% of their income on their monthly house payment. That's down from a norm of 22.1% during the pre-bubble period from 1985 to 1999.
Renters pay more, Zillow says, an average 29.9% of monthly income in the third quarter, up from the 24.9% spent on rent historically.
Real estate website Trulia (NYSE:TRLA) also says that nationally, homeownership is now cheaper than renting. But Trulia Chief Economist Jed Kolko says homebuying affordability will "worsen in 2015." Home price increases will "lessen" but still "almost surely" outpace income growth, he said, and the "strengthening economy" will likely lead the Fed to raise interest rates.
Ready To Own?
Is your child ready to own? There are two components: "financial readiness for homeownership and the ability to sustain homeownership," said Gabriel. For that, buyers need "job security, adequate income and a financial buffer."
By: Kathleen Doler
