How to Help Your Young Adult Child Purchase a Home

How to Help Your Young Adult Child Purchase a Home

The purchase of a new home can be a stressful and lengthy process, even for those of us who have experienced it multiple times. But with those experiences comes a great amount of knowledge that can be imparted on our grown children who might be looking to buy a house or condo for the first time. If your adult child is at this phase of their life, here are some useful tips from the Sklar Team that will make the purchase flow more smoothly.

Help them become familiar with their credit worthiness

As young adults, we might not have paid much mind to our budding credit score. Some of us can remember all too well that early mistakes with debt or late payments can really take their toll on our credit rating. No matter if your adult child has a clean credit record or one that might have hit some speed bumps, knowing the scores from the three major credit bureaus is the first step to help them when they are looking to buy their first home.

There is so much more than just the credit score that makes a potential home buyer credit worthy. As you are probably already aware, a lender also relies heavily on a person’s income-to-debt ratio. Explain to your child that a lender wants to be sure that the amount of all combined debt payments need to be under a certain percentage of the applicant’s gross income. For most conventional loans, this number should be at 45% or lower, though some lenders will take into consideration certain circumstances that would lead to approval of it being as high as 50%.

There are multiple ways for your child to retrieve their credit score online. Certain companies will give them access to not only their score, but also to the entirety of their credit report from all three major credit bureaus. If their score is high enough to attract a lender, great! Help them to understand what their debt load currently is, as well as what it will look like with a mortgage payment. Once you have their income-to-debt ratio calculated, it will be easy to figure out how large of a mortgage payment they could afford and still stay under that 45% sweet spot.

Emphasize the importance of a budget

Once you have helped your child calculate how much house they can afford on their income, it’s important to have them analyze the other costs of living that will impact their monthly budget. They have already demonstrated what their current debt (if any) and proposed mortgage will do to absorb a portion of their take home pay. Now it’s time to help them understand what other expenses to expect.

Along with utility bills, your child will need to factor other needs and wants into their budget. Encourage them to track their weekly spending so they will know just how much they spend on entertainment, groceries, clothing, and trips to the coffee shop. If they are looking for a townhome or condo like Las Olas Condos, they’ll also need to know that they should factor in dues and fees in their budget.

Without the financial burden of paying a mortgage, these various forms of spending might not have seemed like a big deal to them before. But put into proper context, they should be able to see that cutting their discretionary spending substantially can determine whether or not they’ll live comfortably within their means with a mortgage.

Demonstrate the need to save for a down payment

In a perfect world, a bank will approve a loan for a home with no money down. Unfortunately, that is not reality. No matter what type of mortgage they are applying for, having some money to put down is going to be required. And for many first time home buyers, this means taking the time to save up for this necessary expense.

Use a mortgage calculator to show how much a down payment will impact the monthly mortgage amount. Play with the down payment amounts so that they will understand that the bigger the down payment, the less they’ll need to pay each month.

If they aren’t in a hurry to buy, it might be a good idea to encourage them to save the money to get a 20% down payment. While this is a significant chunk of cash to have to set aside, it saves a homeowner a good deal of money in the long run. Along with a substantially lower monthly principal and interest payment, there will be substantial savings by not having to pay PMI on the loan.

Have them make a list of needs and wants

Every future homeowner should make a list of what is important to them in a home. This means more than just the desired number of bedrooms and bathrooms. Is an outdoor space desirable? Is walkability crucial? And what about local schools and parks? Be sure they understand that they might have to sacrifice some of their wants, but should look for a home that meets as many needs as possible.

Refer them to a reputable realtor

One last important item is to get them acquainted with a reputable real estate professional. Choosing the right agent will ensure that their needs and wants are addressed. Encourage them to take advantage of the Sklar Team’s vast experience and network of professionals, who will help guide them through the entire home buying process.

*Header photo courtesy of the Sklar Team

Work With Our Team

The Sklar Team has been recognized as the Top Weston Sales Associates for the past 15 consecutive years, earning the prestigious Coldwell Banker International Society of Excellence since 2015. We live, work and play in Weston and believe in the quality of the lifestyle. Contact us today to start your home searching journey!

Follow Us on Instagram