7 December 2012

Gift vs. Loan when helping your kid with downpayment

Today’s home prices and stricter mortgage rules can be a serious problem for the first-time homebuyers. Often such consumers ask their parents for help and they turn to be quite generous. We can’t blame parent for that – it’s actually a very good idea to boost start your child’s home ownership. But is it really a good strategy for parents?

And though some young people know how to appreciate such financial help, there are many others who just see their parents as an endless financial resource.  We saw many cases when young adults took money from their parents for basic products like food and then bought expensive gadgets, TV-sets and so on.

Meanwhile, there is an alternative way to help your kids and teach them financial responsibility.

Giving a loan or a gift?

Maybe instead of giving money (including mortgage down payments), it’s better to use a loan system, which is of a more educational value in this case. It’s obvious that we don’t get anything for free in the real life – we need to work in order to get anything. When we borrow money from a bank, we need to give it back, right? So why should it be different when we talk about parents?

Of course, you have to count loan payment into qualification equation and gift is easier to be approved by the bank, however even discussing this option or making informal agreement may put more value into your “gift”

Home education

Giving loans to our kids can be a good educational moment, as we teach them to be financially responsible.

Our opinion

Many of us have children, but we have a lot of time before dealing with their mortgage down payments. In the same time, you can teach kids even now that money should be earned and you need to work for it. Of course, all families are different and they have to act according to their own values.

Parents often give their children money for various purchases and mortgage payments as well. Nevertheless, a loan can be a better way to help them!