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How to Help Your Adult Children Buy a Home PART 4

Should you Loan Money, Create a Discretionary Trust, or be the Co-signer or Guarantor?

Loan Money

You can give your child money and require the funds to be repaid. This helps them and keeps your retirement plan intact. It is easy for both sides to forget the details of an informal conversation so work with a lawyer or notary to have a proper loan document, a Promissory Note, prepared and signed. This document contains details such as how much money is needed, what the interest rate will be, and when and how repayment will take place. Further recording of payments authenticates the loan which may be needed for estate planning or court proceedings should his or her relationship break down. When you are sure of your needs you can forgive the loan or in your will after you pass away. Please note that you are responsible for declaring interest earned on a loan on your tax return.

Create a Discretionary Trust

You can arrange to purchase a property through a discretionary trust. Your child can live there according to the conditions outlined in the contract. This does not build their credit rating or financial skills but may protect the home from creditors or the fallout of a divorce or separation.

Co-signer or Guarantor

 If your adult child has irregular income because they are a consultant or freelancer, you can co-sign for the mortgage. Should the child have insufficient or a poor credit history, you can become a guarantor for the mortgage. This is the highest-risk option because you assume the risk of helping your child. If the child can’t make the payments, you will be required to make the payments. The lending institution may take action against you and your child, and your credit score will be impacted.  

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