The other day my wife shared with me a great story about a college student who borrowed $10,000 from her parents to pay for college expenses. Much like a bank provided student loan the student was expected to begin repayment after graduation. After the student graduated and it was time for them to begin repaying the loan her parents decided to use the repayment period as an opportunity to teach their daughter about the importance of philanthropy in the community. Instead of having their daughter make payments to them they had her make the scheduled payments to the college endowment.
When my wife shared a cup of coffee with the daughter in this story she found out that the daughter not only continued to make regular contributions to the college after the $10,000 was repaid but actually went to work for the college development office as well.
In hearing this story I couldn’t help but think about all the first-time homebuyers who are currently receiving monetary gifts from family to make a down payment. I know that in order for these transfers of money to be “qualifying gifts” that no expectation of repayment can exist. However, I suspect that many of these family gifts may come with informal repayment programs even if the lender never finds out about it.
That said, for parents who are in a financial position to offer such an arrangement I think it would be a great way to not only help a child purchase a home but to also leave a legacy of giving back to the community.