These days when it is difficult to get a loan to purchase a home, financial agreements between families can be really helpful. It is essential to consult with lawyers to ensure such agreements are legally binding and fair so that there can be no squabbling over it. Having a verbal agreement is not wise, as one party can change their mind or mistake the meaning of the agreement and it can cause a big split in the family that even family lawyers may find difficult to work through.
Money is usually the number one problem in most relationships, often because one person wants to spend it and the other person doesn’t. So when it comes to hundreds of thousands of dollars any disagreement is likely to have far-reaching effects. In fact, it is far better not to have such an agreement in the first place if it is likely to split the family.
The parents step in
That said, when young people are struggling to make ends meet and paying high rent, their parents sometimes like to step in and help them out. Whether this is a good idea or not is often a moot point. While parents don’t want their children to go through the same struggles that they had as young people, it should be remembered that having goals and determining ways in which to meet them is all good training and can help children appreciate the value of money as well as what their parents went through.
If everything is made easy for them they are often careless with any money they do have and spend it on unnecessary things instead of developing a savings fund. However, if you are determined to help your children buy a home, it is essential to set up a legal financial agreement that both parties are legally bound to, and that does not cause too much hardship for the parents in their old age.
The implications of lending money to adult children
It is also important for the parents to consider carefully all the implications of such an agreement, such as whether it may cause them to lose their own home, should the children default on the payments. It may be better to offer other help such as free board for a certain number of years while they save up. Or perhaps you could offer child minding services so both can work and thus, save what they need.
Of course, a home loan is not the only kind of financial agreement between families. Whatever your agreement is, make sure it is drawn up in a legal way so that both parties know exactly what they are getting into and are in agreement with that and the consequences of one party not keeping up their repayments.