With spring just around the corner, the housing market is warming to a simmer and buyers and sellers are preparing for a busy season ahead. There have been a lot of discussions, stories and headlines talking about housing difficulties and younger adults struggling to buy homes. This month I’m talking about how some homeowners are using their equity to help their kids stay competitive in today’s housing market.
Recently I talked about multi-generational home living, and I’m always fascinated by family dynamics and their impact on real estate and the housing market. Family can be an important, crucial and strong resource for support, whether that support be emotional, logistical or financial.
Following that thread I thought I’d take some time this month to discuss how older generations of homeowners are helping the younger generations navigate this tougher housing market.
Most parents and grandparents who’ve owned their homes for decades know the benefits of homeownership, from housing stability to the financial benefits of expanding your net worth. Taking advantage of the opportunity to buy real estate is essential to most families’ long term goals.
So it’s understandable that they’d want to help their kids and grandchildren to have the same opportunities and help them set up for the future.
Of course, economic challenges, planning and navigating retirement options and opportunities and other life events can make offering help to family difficult and sometimes seemingly impossible.
Fortunately for many homeowners who haven’t tapped into the equity in their homes, their real estate property can offer a great source of wealth to help their children and grandchildren reach their real estate dreams.
Long term homeowners have watched the value of their homes rise exponentially as they continue to pay down their mortgages. These two factors can create a substantial amount of equity in the home they live in.
Many folks need that equity, as it makes up a good portion of their net worth and might be a large part of their retirement planning. But when we look at the issues facing many younger generation potential home buyers, there are some strong reasons that parents and grandparents are willing to tap into their equity to help.
The upfront costs for buying a house today is one of the biggest challenges holding younger potential home buyers back from realizing their dream of owning a home. According to JBREC, a real estate consulting and research firm, 50% of renters cite saving money for a down payment as the single biggest obstacle to buying.
Buyers in Maine should plan on saving over $10,000 toward buying a new home. According to Houzeo, the median closing costs for a home in Maine can range from $4,130 and $10,325. Of course, this cost doesn’t include many of the services associated with moving and owning a home.
It’s easy to see why potential home buyers are anxious about the upfront costs for buying a home, but these costs are likely a small fraction of the equity many longer-term homeowners have in their existing home.
Piecing these two factors together, we can see why many parents and grandparents might be interested in tapping into their equity to help family members buy a home.
According to the National Association of Realtors, nearly 1 in 5 first-time home buyers are using gifts or loans from family to help them achieve homeownership, and as we can see these loans or gifts don’t have to come from trust funds or some large nest egg of money.
Simply tapping into your home’s equity can be very helpful. Of course, I want to clarify that I’m not talking about parents or grandparents selling their homes to cash in on this equity. There are many different ways to use your home’s equity without having to sell.
The easiest way is to take out a line of credit on your equity. These lines of credit tend to have friendlier interest rates due to their low risk for lenders and allow you to pull out equity as you need it.
Such an impactful gift from a family member, even as a loan, can’t be understated. Helping family members realize their real estate goals offers stability, security and a solid foundation for their financial future.
To use the benefits from your success and stability to help loved ones get on the right course for their future offers endless benefits.
If you have any questions about your home’s equity, today’s housing market and the process and costs of buying a home, please feel free to message me anytime!
