What to Tell Your Kids When They Want to Buy Their First Home
It’s an exciting time when you buy your first home. Kinda scary but still very, very fun. You’ve bought your first, second or even third home so by now you know what’s going on. In real estate and mortgages, there’s a brand new language set, some words only used in the world of real estate. Just the word ‘mortgage’ is a classic example. Yes, mortgage is used in other contexts but is primarily connected with real estate. You can remember back when you started buying your first home, you were most likely excited and anxious but when the business end of the deal starts shaping up it takes on a whole other dimension.
Okay, so you’re sitting there at the dinner table and you get a call from your eldest who says, “I want to stop renting and buy this home I saw down the street.” How do you react? There are plenty of reactions but the first most likely will be to tell your child that it’s all much more than the excitement. There’s some pretty boring things, too. There’s lots of paperwork to sign, for starters.
They’ll need money for not only the down payment but there will also be funds needed for closing costs. So-called ‘hard costs’ like funds for an appraisal and credit report but also for ‘soft costs’ such as property taxes and insurance. Prepaid interest is also a cost. Prepaid interest might need a brief explanation. When a mortgage payment is made each month, the payment is applied to the number of days owned in the previous month. If someone sells and closes on a home on the 31st of the month, the first mortgage payment made will also include that one day. For a closing on the 15th, there will be 15 days worth of interest collected, and so on. It’s the opposite of rent where rent payments are applied for the upcoming month.
Your kids also need to know that a mortgage is a different kind of commitment. It’s not something you can walk away from. When renting, you can always move to another property when the lease term is up. With a mortgage, you’re required to keep that mortgage until the home is sold or you decide to refinance and replace the existing mortgage with a new one. Either way, there will still be an existing mortgage. And finally, property taxes and insurance are the kids’ responsibility and not the landlord’s.
Certainly don’t discourage your kids from buying, just let them know there’s more than just the down payment.
Written by David Reed for www.RealtyTimes.com Copyright © 2025 Realty Times All Rights Reserved. Reed is from Austin, Texas and is the author of The Real Estate Investor’s Guide to Financing, Your Guide to VA Loans and Decoding the New Mortgage Market. A Senior Loan Officer and Mortgage Executive for more than 20 years, he has also appeared on CNN, CNBC, Fox Business, Fox and Friends and the Today In New York show.
