Some Owners Turn to Home Equity to Help Adult Children Buy

October 21, 2020

As affordability concerns continue to hinder first-time buyers ready to enter the market, those buyers are finding additional help from their families as parents leverage their own home equity to help their adult children become homeowners.

Forty-three percent of home buyers under the age of 35 received either partial or full down payment assistance from their parents or family members, according to a survey by financial services company Legal and General.

Housing costs are rising. But “the increased equity parents have enjoyed has often come at the expense of unaffordability for their children,” writes Rayan Rafay, COO and CFO of Fraction, which advises startups, for Forbes.com. The higher prices often require larger amounts to reach an affordable monthly payment.

Parents helping their adult children can use a home equity line of credit, if they still have a mortgage, or a regular amortizing mortgage if they fully own their homes. These come with monthly payments, however. Other options include appreciation mortgages, home co-investments, and reverse mortgages, which can prevent a reduction in monthly cash flow. These options also require no monthly payment.

Homeowners should always borrow against the equity from their home cautiously, because it may be needed for retirement or personal emergencies. Experts recommend that owners consult with a financial adviser first and consider all options.