When you have children, you make a commitment to being there for them indefinitely. And while some parents take the attitude that they no longer have to support their kids financially once they leave the nest, others aim to continue offering financial support to some degree for as long as they can.
Now that support can come in different ways. But in your mind, it could mean giving your children money toward a down payment on a home.
In a recent survey by T. RowePrice, 27% of parents say they feel they can help pay for a home for their kids. But helping your children buy a home might backfire for a few big reasons.
Can your kids afford that home in the absence of further help?
It’s one thing to write your kids a $50,000 check to help them come up with a down payment on a home. It’s another thing to commit to giving them $1,200 every month to cover the mortgage.
If your kids aren’t in a position to buy a home without help, they might also struggle to keep up with their costs as homeowners. Remember, they’ll have to worry about property taxes, homeowners insurance, maintenance, and repairs. And if they can’t afford all of those costs, they might end up turning to you for help on a regular basis, even after you’ve already given them a large financial gift.
To put it another way, if you hand your kids money to buy a home, don’t assume your job is done. They may come back asking for more — not to be greedy, but because they’re in over their heads with their newfound expenses.
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So if you’re going to gift your children some down payment funds, set clear expectations about ongoing help. If the $50,000 you give them to close on a house is truly a one-time thing you can afford, make that clear from the start. And encourage them to use a mortgage calculator to see what costs they’ll be taking on.
Will you impede your own financial goals by helping your kids buy a home?
If you’re truly sitting on a pile of extra money, then sure, why not use it to help your kids achieve a financial goal of theirs? But if your ability to help your children buy a home hinges on having to raid your IRA or 401(k) ahead of retirement, then that’s a decision you may want to reconsider.
Let’s say that at age 63, you take $50,000 out of your IRA to help a child buy a home. You may not lose out on too many years of growth on that money since that’s so close to retirement. But still, you’re denying yourself $50,000 of retirement income. You might end up needing that money for a variety of reasons, whether it’s unexpected healthcare bills or home repairs of your own.
Of course, if you have a $3 million IRA balance, by all means, give your kids $50,000. But if you have $500,000 in savings, it’s probably not a good idea to hand over 10% of it.
It’s a nice thing to want to help your kids buy a home, especially at a time when property values are so high. But just make sure you’re not doing it at the expense of your own financial well-being, and that you’re not setting yourself up to become your children’s personal ATM.
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