How to Buy a Home for Your Parents
It’s fairly common for parents to help their children buy a home. But sometimes, adult children are in a position where they want to help buy a home for their parents.
It may be that the children have been successful and want their parents to have a better home than they do now. Perhaps the current housing no longer meets their needs. Maybe the parents live some distance away and the children wish to have them nearby, but housing costs in the new location are considerably higher than where they live now. Or the parents may need a retirement dwelling but can’t afford to make the move on a fixed income.
Basically, you have three options:
1. Buy a home for them outright and allow them to live there.
2. Assist them in buying a home if they’d have difficulty obtaining a loan by themselves.
3. Buy a home and rent it back to them at an affordable cost.
Coupled with these are questions about financing, title, taxes and the eventual sale or inheritance of the property, which vary among the three options.
1. Buying the Home Yourself: If you’re planning to finance the purchase of the home yourself, you probably have significant assets to draw upon. In that event, Malcolm Hollensteiner, director of retail lending products and services for TD Bank in Cherry Hill, N.J., recommends leveraging those assets rather than financing the property through a regular mortgage.
“If the financing is in their (the adult child’s) name but they don’t intend to occupy it as a primary residence, the lender will view it as a second home or an investment property,” Hollensteiner said. That could mean paying a higher interest rate and more in closing costs than on a primary residence.
If the buyer has a lot of equity in their own home, Hollensteiner suggests that they might wish to tap that instead. A cash-out refinance would likely provide a lower interest rate than they could obtain…