How to Survive Buying a Home with Mom and Dad
NEW YORK ( MainStreet) Six months ago, Elspeth Gibb purchased a $182,000 apartment in Central Harlem with the financial help of her parents.
"My parents helped by gifting a substantial portion of the down payment," Gibbs said of her 291 square foot condominium.
The 28-year-old was able to secure financing by agreeing to forgo asking her parents to fund the future costs of a wedding .
"I have seen Millennials have expensive weddings paid for by their parents and then get divorced before they are 30," said Gibbs who was raised in the Midwest. "For me right now the long term risks and benefits of homeownership outweigh a potential wedding that is not happening anytime soon."
Another point of negotiation for Gibbs and her parents was a beneficiary.
"My father wanted to make sure that if anything happens to me, my condo will pass directly to my parents so I am obligated in death," Gibbs joked.
Gibbs is one of many Millennials who are turning to their Boomer parents for financial assistance to buy their first home.
"It's a tough job market so if parents can help many certainly do offer assistance," said Kathy Braddock, managing director with William Raveis in New York City. "There are however a lot of kids still living in their parent's home."
Gibbs was motivated to ask for financial assistance from her parents after calculating the cost to buy versus the monthly mortgage compared to monthly rent.
"My budget constraints had me frustrated at times, but when I saw the building online I knew I had to check it out," Gibbs told MainStreet. "I am lucky that my parents put a high value on buying a home and were able to help."
In order to avoid feeling that there are strings attached, Millennials may want to seek the assistance of a bank loan rather than accepting an outright gift from parents who may demand more involvement in their Millennial child's life in return for the financial assistance.
"If it's a loan, get clear on when you have to pay it back to your parents," Braddock told MainStreet. "What's the interest rate if any and if the home is sold, how much of the profit will be split with parents?"
Another complicating factor to consider is how the real estate deal will change once the adult child acquires a spouse.
A common solution is establishing joint ownership.
"Parent and child can be partners and buy together," Braddock said. "Have a strategy, clear framework, create guidelines and discuss expectations up front."
If buying a home requires too much of a commitment due to career uncertainty, renting is forever an option.
"It's great to own but only if you have a firm plan and know where you will be in three years," said Braddock. "If you are not planning on living in an area for at least three years, buying doesn't make sense."