More and more young people are unable to purchase a home without financial assistance from their parents. Parents who loan or gift their children money need to be very clear on their intention. Is the money a loan or a gift? If the young couple separates what expectations do the parents have regarding repayment? These issues need to be determined and there needs to be a clear written agreement setting out everyone’s expectations.
A problem often arises when the young couple need to obtain a mortgage. The mortgage company may require that there be no secondary financing (i.e. no second mortgage to secure the parents’ loan) and they may require a letter signed by the parents stating that the money is gifted to their children. Without this the mortgage company will not loan money to the children. This may not be what the parents intended.