More Buyers Relying on ‘Bank of Mom and Dad’
Young adults want a home; their parents want them to have a home. As a result, more moms and dads are giving money, co-signing or even gifting a house to their kids.
NEW YORK – With rising home prices, the “bank of mom and dad” helps many adult children purchase their first home, especially as home prices and mortgage rates move higher.
More parents are now stepping in to help young adult children buy, whether by co-signing on a mortgage, gifting them money for a down payment, or even buying them a property outright.
“It has a lot to do with rental prices being so high,” Becki Danchik, with Coldwell Banker Warburg in New York, told Bloomberg. “They feel like it’s a waste to be throwing away money on rent when they can capitalize on the sales market right now.”
Climbing home prices and mortgage rates above 5% make homeownership more difficult for first-time buyers. Further, housing economists have increasingly pointed to real estate as a way to soften the blow of 40-year high inflation and the advantages of owning rather than paying high rents.
In big cities, parents show an even greater interest in real estate investments to avoid paying expensive student housing fees, real estate pros say. College students in large metro areas make up a sizable portion of clients.
“You see interest from people saying, ‘That could be a down payment. I may just as well have an apartment that appreciates,” says Ian Slater, a broker at Compass in New York, about the high prices in student housing.
Financial advisers report an increasing number of ultra-wealthy parents seeking advice on purchasing homes for their adult children because of the increased cap in the gift and estate tax exemptions, Bloomberg reports. The 2017 Tax Cuts and Jobs Act has doubled through 2025 the amount that Americans can pass on to their heirs tax-free, to just over $12 million for individuals in 2022, while the gift tax annual exclusion amount increases in 2022 to $16,000.
Source: “Parents Are Buying Homes for Kids Priced Out of the Housing Market,” Bloomberg (June 7, 2022)
© Copyright 2022 INFORMATION INC., Bethesda, MD (301) 215-4688