3 Key Observations About Parents Helping with Down Payments

Parents are often helping their kids out with down payments nowadays. Here are three observations that don’t get much attention.

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 Not surprisingly, with home prices where they are now, we’re seeing a number of parents help their kids out to buy their first home. Lots of reports on this from financial institutions. It’s not ideal, clearly, that being fortunate enough to have parents who can indeed help out has now become so important.

It’s not fair to the many who don’t have those parents. But it is reality, so let me give you three observations that aren’t getting much, if any, attention, but I think are actually quite important. 1) A lot of parents are giving one of their kids money to help with the down payment, but not necessarily the other sibling or siblings, because perhaps those people don’t need it, or they have already purchased a home.

Then, most often, the parents alter the will, so that when they pass on, the offspring that did not get the, let’s say, $100,000 (it’s usually around that figure) get that amount from the estate before the rest is evenly divided. Be careful here. That’s not as “equal” as it seems. Remember, the lenders, the parents, are often only in their 60s.

The longer living of the two may well have 30 years to go. Therefore, when the sibling or siblings get the “even out” $100,000, it might only be worth half as much in today’s dollars. I would stipulate, I wanted to leave them $100,000 in 2025 dollars, (the year of the down payment gift) calculated by using CPI adjustments. Really does make good sense.

Now, if you’re the one getting the money, do not share this video with your parents and siblings. 2) I’m getting asked a lot lately about post-nups. Post, not pre. Why? Parents want to give money to one of their kids to help out with the down payment, but are worried that the son or daughter’s existing marriage or common-law relationship ends, the matrimonial-home rules will kick in and the ex-partner will get half the donated money.

Yup, absolutely could happen. My advice has been a bit surprising to many here. I say let it go. Don’t push for the post-nup. They’re a couple, a team. They’re starting out. Buying a first home. Maybe having their own family, or maybe a first child is on the way. I’d support all that fully. The examples I’m seeing are, as mentioned, most commonly, $50,000 to $150,000.

If, sadly, the couple splits, $25,000 to $75,000 probably does go with the partner who’s not your child. But, importantly, there’s a fairly good chance he or she is the mother or father to your grandchild. Still family, therefore. Hey, there’s no easy answer here and everyone has to make their own call. Do what’s right for you.

It’s easy for me to say let it go when it’s your money and not mine. But keep this in mind: Asking for the post-nup may make the Holiday Season a little awkward. By the way, we’ll look at loaning the money instead of gifting it in an upcoming video. 3) Please see your financial planner/advisor before you give the money.

We all want to help our kids out, we really do, but you can’t sabotage your own retirement planning through this effort. Let an expert use software to show you how gifting the money could affect your retirement income. The full range of potential outcomes. My dad recently told my sister and me that he wanted to give us money now, but if he lived past 100, he might have to move in with one of us.

We’re like: “Dad, keep your money. Please keep your money.”