A large fraction of the millennials is still looking for help from their parents to purchase their first home. Millennials are looking for help with a major portion of the down payment for their new homes.
The children may not have asked it, but parents and relatives definitely consider the option of helping out their little ones in the purchase of their first home.
This is due to the fact that nearly 60% of the millennials are not confident enough to purchase a home entirely on their own.
The question is should parents be helping out their adult children in such situations? In most cases, parents help their children by reaching down into their own retirement savings.
Is it a bad idea to help your children purchase their first home?
While making the decision on whether or not to help their children is entirely up to the parents, it is a bad idea to help adult children purchase their homes for many reasons.
The first and foremost reason is that most parents are middle-income earners. Paying for a child's home simply means exhausting the contributions made towards their retirement. This could prove to be risky in the long run.
In addition, even if the parents still have an opportunity to continue contributing to their retirement accounts, helping with down payments would mean a decrease in the monthly retirement contributions.
Parents who are nearing retirement are especially among those who face the most risk in such situations.
This being said, parents can still make a contribution if it is a good investment. In such scenarios, it is better to lend the money rather than gift it. A cheap interest rate can ensure the safety of hard-earned retirement savings.
It is also a good idea to contribute towards the purchase if your children earn well and can repay the amount within a stipulated time.
In many cases, parents often match what their children have saved towards purchasing a home for the first time.
Lending the money required to children frees them from being obligated to private lenders and the cheaper interest rates are an added advantage.
Before making any such contributions, it is always a better idea to consult certified financial professionals to see how such contributions will affect the overall retirement savings.
Once a certain level of stability is established, parents are likely to feel more inclined to help out their children.