All parents want their kids to be happy, stable and reside in a safe place. For many, that means home ownership–but in this economy, achieving that goal can be mighty tough. Mortgage lenders are requiring a greater amount of cash down than they have in the recent past, and a lot of people just aren’t earning as much as they used to.
So should you step in and save the day? That depends. A large donation requires considerable thought and preparation. You’ll want to make sure it makes sense for both you and your children. More, if you do chose to cut a large check to finance their first home, you’ll want to do so in the right way. Here’s a quick “to gift or not to gift” questionnaire:
Their Dream or Yours?
The first matter you need to explore is whether or not your children truly want to become a homeowners. By the time they’re 18, how they choose to live is not your decision. For example, you may want your daughter to own a pretty little shuttered house in the suburbs (complete with family and golden retriever), but she prefers being a single, carefree renter–at least for now.
Have a long talk about dreams and desires. Never impart your dream on your someone else.
Do They Deserve It?
I am not a big fan of handing over money to children simply because they are one’s offspring. Instead, analyze what they have done and are doing to actually merit the present.
For example, are they working hard to get ahead, do they treat you and others with respect and have they proven themselves to be responsible borrowers? With the sense of entitlement that so many people have, you want to avoid perpetuating that “I deserve it” attitude.
Can You Afford It?
The last thing you want to do is put your present and future at risk so your kids can own their own homes. It’s just not worth it. If they are unable to buy right now without your help and you can’t afford to help out, so be it. Only give when you have plenty of cash to spare. You are doing a disservice if you stretch your finances so thin that they’ll have to pay your monthly bills or fund your retirement years.
What Conditions are Connected to the Gift?
The word “gift” connotes the opposite of a loan–that you don’t expect to get any portion of the money back. Or do you? If so, say so.
On paper, outline the date installment payments are to begin and when you expect to be repaid in full. You may have other demands that come with the gift as well, such as promises to stay in the home for a certain number of years. To avoid strife, you and they need to be clear on and agree to all expectations. Surprises are for parties, not contracts.
Finally, if you do decide to gift all or a portion of a home down payment, know that you’ll have to follow a certain process: Write a “gift letter” that includes such descriptions as the value of the gifted money, the specific property it’s to be used for and everyone’s relationship and signatures.
Never give cash, and in lieu of personal check, get a certified check from your bank instead. The amount needs to be for the down payment only, and not inclusive of anything else you want to give it for, like furniture or moving expenses.