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Learning More About Real Estate

After finally saving up enough money to use as a down payment, I decided that it was time to hit the market. I met with a lender, got pre-approved for a loan, and then started visiting different properties. However, I quickly realized that I didn't know as much about real estate as I would have hoped. I wanted to find a great neighborhood and know what to ask the professionals, but I could tell that I needed a little help. To point me in the right direction, I started working with a great real estate agent who was familiar with the area. This blog is all about educating the general public on real estate matters.

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Learning More About Real Estate

Tips For Loaning Your Child Down Payment Money For A House Purchase

by Nathan Olson

One of the best ways of helping your financially challenged child to buy a home is to loan them money for the down payment. However, it can also be risky depending on your child's financial awareness, muscle, and discipline. Use the following tips to minimize the risk:

Draft A Legally Binding Loan Agreement

The first tip is to treat the money as a real loan and draft a legally binding loan agreement that both you and the kid can sign. This is a good way of teaching your child financial discipline as well as ensuring that they will honor their side of the bargain. The benefit to the child is that you can give the child low-interest rates, ignore their credit rating, and avoid charging them any other loan fees. Of course, you can always forgive them the loan if they can't afford to repay it and you are so inclined.

Make Sure They Can Afford the Repayments

Give due consideration to the kid's financial status, including their future abilities, before loaning them any money. There is no use saddling them with a loan that you also know they will struggle to repay or will plunge them into dire financial struggles.

Educate Them on the Real Estate and Loan Market

One of the best gifts you can give your child is the gift of knowledge. If you have got to the point where you can loan your kid money for a home, then you are more likely than not to have a wealth of financial wisdom that you can impart on them. Don't let them buy a house they can't afford. For example, let them understand the true cost of home ownership, which includes all kinds of expenses such as property taxes and maintenance costs. 

Make Sure the Money Is Used For the Purchase

Lastly, if you are loaning your kids money for buying a house, make sure it goes to the intended purpose. Maybe it is the first time they will be handling such a huge amount of money, so it may be risky for them to actually handle it. It may be wise, for example, to have the money transferred directly to the person or party who will be receiving the down payment, such as the seller's lawyer. That way the child isn't tempted to squander the cash on other things.

If you have got to the point where you can give your kid money to buy a house, then you probably have some financial knowledge to impart on them. Don't forget to advise them to use an experienced real estate agent to safeguard the investment.

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