After experiencing success, one of the first purchases some people make is a new home for their parents. Some choose to buy the home because they want their parents closer to them or their parents are on a fixed income and need the assistance. Regardless of the reason, there are several options available for helping your parents. Here are two options and the pros and cons of each.
Assist Your Parents
Instead of outright buying the home for your parents, you could choose to assist them in doing it themselves. In essence, you could co-sign for your parents' home loan. Helping them through this method could be beneficial to you and them.
When you co-sign, you enable your parents to afford the home they want. If they have poor credit, their chances of getting a loan is greatly reduced. However, with your assistance, they could not only score a loan, but potentially get one with a lower interest rate than they would have been offered with their own credit history.
Another reason to co-sign is that you do not have to invest your own money into buying the home. Your parents will be responsible for the down payment and other closing costs.
There is a drawback to co-signing for your parents though. If your parents are unable to make the payments, the loan could default. You can potentially avoid this problem by opening a joint bank account with your parents from which the payments can be taken. You can monitor the account to determine if the funds are available for the mortgage payments and help make up the difference if not.
Rent to Your Parents
Another option available to you is to buy a home for your parents and rent it to them. If you choose this option, you have the security of knowing that trustworthy tenants are residing in the home. If there are renovations that need to be made to the home, you can do these knowing that they benefit your parents and add value to your home.
In addition to this, you can use the property to garner tax deductions for the money you put into the home. To claim the rental property, ensure that you and your parents have a formal lease agreement in place.
There is a disadvantage to renting to your parents though. If you do not feel comfortable collecting rent from your parents, the first of the month could be awkward for both of you.
You and your parents should work with a realtor to determine what the best option is for both of you.