The Finance Blogger


Helping the Kids with a Downpayment

Helping the Kids with a DownpaymentMore and more parents are faced with this dilemma of whether they should help their kids with a down payment for a home they want to purchase. The short answer is that if you can afford it and it will not impact your life style or your retirement, why not. But helping the kids with a downpayment can cause problems for you. On the other hand if it will impact either of these situations, then maybe you should think about it.

Helping the Kids with a Downpayment – Should you help them?

Your kids will promise the world to you to obtain your help and everyone wants to help out when they can, but the reality is that you should assume that the money is written off and if it is paid back by some miracle then this is indeed a bonus. If you plan to give it to them and not expect anything back, then there is no loss as long as you are treating all of your other children in the same manner. There is not need to create any rivalry between siblings.

Should it be a loan?

Again if you do not need the money, just give it to them, however if you need some of this money to live on in your retirement, we suggest that it be a loan that is registered against the home. This way if the house is sold for some reason there is still a chance that you will get part of your loan back, in addition to  whatever loan payments you may have received.

Or an outright gift?

Check into the tax consequences of gifting the money and if there is no appreciable tax implication and you do not need the money, why not give the money. You will get to see the enjoyment of how your money is helping out before you die.

What is the tax impact?

The answer really depends on how much and where you live regarding how they treat the tax impact of gifting, of providing an interest free loan or an interesting bearing loan. Talk to an accountant first before the money is lent out and make sure that it is set up appropriately.

Will it hurt your retirement?

A key question to ask yourself before you lend any money. Don’t expect to be paid back and evaluate the impact if any on your quality of life in retirement. Then decide if you can still go ahead with the loan.

Do you enjoy helping your kids?

The answer is probably yes, however many people will have concerns about the spouse of your kids and what the impact will be. Also can you help all of your kids in the same way. This is so important to avoid any rivalry between kids and resentment.

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