As you saved for college, start now to save for a home

Parents and their offspring conditioned to save for college should prep themselves to apply that discipline all over again. Only this time, the financial goal is longer term: the grown child's first home.

While the methods both sides use to reach this goal may differ, money experts agree the savers will need plenty of resolve and expert advice along the way.

The younger set will need to set priorities, develop a healthy discipline for saving and use of credit, and accept realities of the real estate marketplace. For their parents, it will mean understanding gift and loan options.

"If the mindset of parents and their children is to own a home, they need to be really disciplined about it and know all their options," says Gwen Thomas of Bank of America. "It's doable. It just takes some forward thinking."

The best first step for young people is to simply adopt a diligent savings habit. Financial pros such as Thomas say squirreling away cash money out of sight tends to stay out of mind can be done without crimping youthful lifestyles. Thomas recommends automatic payroll deductions funneled into an account separate from daily checking or savings.

Worth remembering for homeowning wannabes is that their past particularly credit card use impacts their real estate future.

Thomas says indiscriminate use of credit cards during freewheeling college years can tarnish credit reports. Still, she says, responsible credit card use "is a good way to build credit." A spotty credit history can affect both the type of home loan and interest rate. Her counsel: use only a few cards and pay at least the minimum balances. Even if debt is carried on a card, those payments help to build credit.

Although no one knows for certain how many parents contribute to the purchase of a home, what is clear is that parents have lots of ways to provide assistance.

Among other options, parents can loan money, make outright gifts or co-own the home with their child.

Parental loans can be below market rates, but there's a catch. Thomas says for young borrowers to deduct the loan interest for tax purposes, a promissory note outlining repayment terms is necessary along with a deed of trust filed with local governments in favor of the parents. The interest income parents receive is taxable income.

Another loan scenario has the parents loaning partial payment say, 50 percent and their children securing the balance of the purchase a loan from a bank.

Then there are gifts. Each parent can gift up to $11,000 per year. Those funds can be used for the down payment or as a way to forgive a purchase loan year in and year out.

More complex is a shared ownership arrangement. But there are a number of complications involved, including percentage of title ownership, joint tenancy, and tax implications, to name a few.

But the biggest role of parents may be as advocates for homeownership itself. "As the senior influencers in the life of their children, it's up to the parents to emphasize owning a home as a way to build wealth," says Thomas. "The concern will shift from getting through college to getting a firm real estate foothold."

Thomas points out that the old saw of a 20 percent or more down payment is old school. "Get it out of your head that you need to save enough for a 20 percent down payment," says Thomas. It's worth the time of borrowers to explore programs that require zero down payment or as little as 3 to 5 percent down payments.

"The big question for everyone in a family is, 'Is homeownership important?"' says Thomas. "If it is, the programs are available to make that dream a reality."