Helping kids buy their first home

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 Q. My son and daughter-in-law want to buy their first home, but neither of them have good credit so they’re looking at very high interest rates. If I co-sign, they will get a much better rate, but I’m not sure if I should. The other option is to give them an early inheritance — a cash gift — so they can take a smaller mortgage. What should I do?

A. It’s common for parents to want to help their kids get started.

You’re right that there are many ways you can possibly help, but some options are better than others.

Doug Buchan, a certified financial planner with Main Street Financial Solutions in Pennington, prefers the cash option over co-signing a mortgage.

“By co-signing, you may be able to get them a slightly better rate, but you then take on the full liability of the mortgage,” he said. “Failure to pay the loan means the lender can — and will — come after you for the full amount.”

While you might think that scenario is very unlikely, it can happen, which often wreaks havoc on family relationships, he said.

So a cash gift, or early inheritance – assuming you can afford it – could be the way to go.

“It immediately gives them more equity in the home, which will lower their monthly payment and lower the chance of the house ever going under water,” Buchan said. ”Additionally, you get to see your kids enjoy your money while you’re alive versus waiting until inheritance time.”

Buchan said you need to Just remember the annual gift tax exclusion is $14,000.

” You could gift your son $14,000 and your daughter-in-law $14,000. Additionally, if you’re married, your spouse could also gift $14,000 to each of them,” he said. “Above and beyond that, you’ll have to file a gift tax return each year.”

If you go above the above thresholds, talk to your tax preparer or CPA regarding the possible ramifications.

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This story was first posted in December 2014. presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.