Owning a home is a fulfilling life step that helps to build generational wealth and stability. However, as home prices and interest rates rise, many people are struggling to reach this important milestone.
If you are in a comfortable place financially, you may see your family’s struggles toward homeownership and want to help. One way to support your loved ones, and provide the benefits of stability and wealth, is to buy a home for your family.
Whether you are interested in gifting a home to a loved one or helping a family member who is struggling financially, there are many different ways to go about buying a home for a family member to live in. Choosing between options such as conventional mortgages and stock loans may take time, research, and advice from a financial advisor, but the work may result in the creation of a better life for your loved ones.
Getting a Second Mortgage
One way to purchase a home for a family member is to take out a second mortgage. A second mortgage is a home loan that allows you to pull from the existing equity you have in your home.
Second mortgages help you to tap into the equity you’ve built to help a family member, but some challenges come with these types of loans. Second mortgages normally have higher interest rates and are for smaller amounts of money than your original mortgage.
You may decide to take out a second mortgage to help a family member with the down payment for their new home, or to provide a larger portion of the funding for the purchase.
Giving the House as a Gift
Buying a house for a family member to live in is an incredibly generous gesture. Your family members will be happy to receive such a gift, but it is important to understand the tax implications of this decision.
In 2024, gifts under $18,000 do not need to be reported to the IRS. However, a high-value gift like a home will need to be reported and may lead to a gift tax that must be paid by the gifting party.
When gifting a home, keep in mind the property taxes and other associated costs. Talk with your family members about their finances and their ability to pay the taxes and expenses associated with homeownership.
Sharing Ownership With Your Family Member
One way to help a family member own a home is to share ownership. This would involve cosigning on a joint mortgage and sharing property ownership and decision-making power with your family member.
Joint ownership increases the borrowing power of the borrowers and may lead to more favorable mortgage rates from lenders. However, if one of the joint owners has a low credit score, then joint ownership can have the opposite effect and lead to high interest rates.
Before signing a joint mortgage, talk with your family members about your expectations for future decision-making. Having these difficult conversations before signing the paperwork will ensure that your family’s relationship doesn’t suffer when challenges arise.
Financing a House for a Family Member to Live In
If you have decided to buy a home for your family member, then it is important to explore the financing options available to you.
Each option brings different benefits and risks for the borrower and lender, and understanding these options can help you decide which is best for your family’s specific situation.
Home Equity Loans
Home equity loans allow you to make the most of the money you have already put into your home.
These loans use your home equity as collateral. Home equity is the difference between what is owed on a home and what the home’s value is. Your home equity is the portion of your home value that you have paid for. Using your home as collateral brings a certain level of risk; if you default on the loan, you will lose ownership of your home. Before taking out a home equity loan, speak with a financial advisor to determine the associated costs and fully understand the risks involved.
Conventional Loans
Some mortgage loans, such as those offered by programs through the Federal Housing Administration and Department of Veterans Affairs, allow for home loans with low monthly payments for those who are eligible.
However, a conventional mortgage loan involves securing funding for a home purchase through a lender that doesn’t have the federal government’s backing. This process requires more strict loan policies, including requirements for a specific income, credit score, and down payment.
When you’re choosing a conventional loan, there are a variety of options, including:
- Fixed or variable: A mortgage interest rate can be fixed, remaining the same for the entire loan term, or variable, moving up and down with the market.
- 15- or 30-year term: Standard loan terms are 15 or 30 years. With a 15-year loan, the borrower pays more per month, but overall pays much less in interest. A 30-year mortgage offers smaller monthly payments and short-term savings, but in the long run, leads to higher mortgage payments to the lender.
Each of these options offers different advantages and disadvantages to borrowers and should be considered in-depth.
Stock Loans
As you look to invest in a new property for your family member, your source of funding may lie with investments that you’ve already made. If you have invested in the stock market and developed an investment portfolio, those stocks can be used as collateral for stock loans.
Stock loans provide a way for individuals to make the most of the value of their investments. You will continue to hold ownership of your stocks and benefit from their value growth, however, failure to make payments on the loan may lead to default and loss of stock ownership.
If you are interested in learning more about stock loans, then you can start by checking your eligibility and determining how much of a loan you can receive. Conducting research and exploring your options, whether you choose stock loans or a conventional mortgage, is an important step as you work towards your goals of helping your family members own their own home.
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