With mortgage interest rates still hovering at historic lows, your children or grandchildren may be asking you for advice – or outright financial help – in purchasing their first home. And you may be asking yourself if they’re ready for such an important financial commitment. Here are some questions you should ask your child or grandchild before committing to more than sage advice.
Do they have a budget and know how to use it? In addition to the house payment itself, ownership means insurance, utilities, property taxes and upkeep. Have they analyzed the full financial impact of those ongoing expenses?
Do they have a reliable source of income? Consistency is key. If their employment situation or amount of income seems to fluctuate, a home may be too big a burden at this time.
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Is their debt under control? Banks look at total debt, including mortgage, credit cards and student loans. If those account for more than about 40 percent of total wages or salary, they may not qualify for enough money. Rule of thumb is no new debt for six months to a year before taking on a mortgage.
Do they have emergency money? That Boy Scout motto still applies – be prepared. A three- to six-month cushion should be enough to cover mortgage payments in the event of disability, job layoff or natural disaster.
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How’s that credit report? A healthy credit report can translate to a better interest rate. Your children or grandchildren should get in the habit, if they haven’t already, of requesting their credit report annually.
Should you help with the down payment? That’s the million-dollar question. Whether you want to help your children out or make them go it alone, you should determine the impact that it will have on your own financial situation.
You may want to consider consulting with a Certified Financial Planner to assist you in determining how helping your children could affect your big picture and to give you ideas for structuring that down payment as a gift or an advance in the child or grandchild’s inheritance.
FINANCIAL FACTS
Most Don’t – Only 42 percent of American consumers that charge purchases on a credit card pay off their credit card balance each month (source: Adam J. Levitin, Georgetown University Law Center, BTN Research).
Anxious – Six out of seven Americans surveyed (85 percent) are either “very concerned” or “somewhat concerned” about the current state of the U.S. economy and how existing conditions may impede their ability to retire (source: National Institute on Retirement Security, BTN Research).
Never? – Thirty-one percent of working Americans at least age 25 have never expressly saved for their eventual retirement, while 65 percent of French workers at least age 25 have never expressly saved for retirement (source: HSBC: The Future of Retirement Survey, BTN Research).
