I’ve always been a fan of parents giving their children downpayments for their new homes. (Mostly because I can’t see any other way for a 20-something to save 5 or 10 percent for a downpayment.)

There are different ways to structure the arrangements – of course, a parent could just buy their child a home, and collect rent (or not). Or, they could loan or give the child money for the downpayment.

New-home buyers are increasingly turning to mortgage lenders so close to home that they have actually lived with them — their parents.

Mixing family and finance sounds like a recipe for disaster, but as real-estate prices hover near record levels, relatives are ponying up more cash to help their kids get into a new house. Last year, about one in four first-time buyers received a gift from a relative or friend to make a down payment on a home, up from one in five more than a decade ago, according to a National Association of Realtors survey released this week.

Along the way, they are finding new ways to maximize the tax and estate-planning advantages. Rather than simply handing over cash, more families are setting up structured, secured loans that mirror bank mortgages, complete with filings at the county clerk’s office.

The upshot: What once was an informal practice — a gift or loan of a few thousand dollars here or there, with a promise to pay it back — is getting trickier.

Known as intrafamily mortgages, transactions like these were once the domain of wealthy families who could afford the advisory services necessary to structure the loans. However, that is changing as a small industry of financial advisers and mortgage experts springs up to help parents step in as mortgage bankers for their children.

Complete article: When Mom & Dad Are The Bank – by Diya Gullapalli, The Wall Street Journal

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Updated: January 2018

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