More parents helping kids buy homes

NEW YORK (CNNMoney) -- Hey, baby boomers! Pondering what gift to get your kid who's all grown up? For many of your peers, the answer is a house.

One in five baby boomer couples have already given at least one of their children the means to purchase a home -- either buying it outright, furnishing the down payment or co-signing the loan, according to a survey from Better Homes and Gardens Real Estate.

And more than two-thirds (68%) of respondents said they expect to provide financial support to their children or grandchildren in the future to help them afford homeownership.

Many real estate agents around the country have observed this trend gain steam since the housing bust began.

"Parents want to see their kids in a stable living situation," said Chayah Masters, a Coldwell Banker Residential agent in Los Angeles. "Plus, property values have come way down. Why not help the kids while they are so low?"

Gallery: Parents buying kids homes

The typical U.S. home now costs about the same as it did back in 2003. In some markets, like Phoenix, Orlando and Las Vegas, prices haven't been this reasonable since the late 1990s. And low interest rates make homebuying an even more affordable investment.

In New York City, according to real estate agent Chazz Levi, many foreign nationals are buying apartments for kids going to college in town.

"I think it's a smart thing to do right now," she said.

Some of the kids have good jobs and enough income to afford a home on their own except for one thing: too little cash.

Cash is king right now. Cash buyers get the best deals on homes like bank-owned foreclosed properties or short sales. Even ordinary sellers prefer it because sales are more likely to go through and close quickly.

Buyers also need a nice bundle to fund 20% down payments so they can get favorable mortgages. For a median priced home -- about $160,000 right now -- that comes to $32,000 up front. Many young people just don't have that much saved.

One such buyer was a client of Brooklyn-based real estate agent Nick Ferrone. The buyer got a $175,000 cash infusion from his folks. That covered his down payment and enabled him to land a bargain interest rate of just over 4%.

Many young people in this hardscrabble economy also face trouble getting a mortgage approved because they have the wrong kind of income.

They cobble together earnings from freelance and part-time jobs but those income sources may be too unpredictable for lenders. Underwriters prefer steady paychecks from employers.

While it can be a good thing for all involved when parents help their kids get homes, it can also get complicated.

The first question parents should consider is how much help they can realistically provide, said Ted Beck, CEO of the National Endowment for Financial Education, a Denver, Colo.-based nonprofit.

"Sit down and figure out what you can really afford to do," he said. "You should never put your own budget or your retirement plans at risk."

Just as important is determining just what the child can afford once mom and dad set them on the path to homeownership. If the parents just want to help with a down payment or co-sign the loan, will the kids be able to afford the monthly bills?

Follow the old rule of thumb that the child's housing costs should not exceed 28% of gross income, said Beck. When other debt like students loans are factored in, the total shouldn't exceed 36% of their income.

Also keep in mind that there are many additional costs new homeowners have to expect. Sooner or later roofs have to be replaced, plumbing repaired and heating systems updated.

Another all-too-common pitfall, according to Beck, is a misunderstanding about the form the help takes. He said it's common, for instance, for parents to look on their contributions as loans but the kids to believe they are gifts.

He advised making sure all the arrangements are made crystal clear to everyone from the onset. If it is a loan, put it in writing. Otherwise, Thanksgiving dinners can get pretty uncomfortable.

Beck said that confronting the issue head-on from the beginning can be a positive thing for both parents and kids. Outlining their responsililties and obligations doesn't have to be a chore.

"This can be a good time to sit down with the kids and have an adult conversation about money," he said.