With housing costs way out of reach for many young adults, especially in the face of the current economic crisis, often the only way for adult children to get out of the parental home is with a significant “bail-out” from mom and dad.
Peter G. Miller, author of Common-Sense Mortgage, has a suggestion for a better way to help your adult kids buy a home:
As a parent you can always give a gift to a child to help them buy a home. But a “gift” is something that you don’t get back and doesn’t pay interest, not an option for a lot of families that are not among the rich and famous.
Under the new FHA package, however, there is a delightful option: You can give the children a loan and it will count as “cash” for FHA downpayment purposes.
This is likely to be a better idea for most parents than an outright gift. You can structure the loan as you like, maybe not requiring payments or interest for awhile, or maybe not requiring repayment after so many years. And you can forgive the debt in your estate, if you want.
You can read the rest of his article here.