Is giving your child a personal loan worth the risk?

Published: Friday, Feb. 17 2012 3:18 p.m. MST

Gabriela Gasca counts donated coins during an event to raise money for the Family Resource Center at West High School in Salt Lake City in December 2011.

Brian Nicholson, Deseret News

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Some parents have become their child's mortgage lender as more young people fail to qualify for mortgage loans even with rates at record lows, according to Fox Business.

"Twenty-six percent of first-time homebuyers received a gift from a relative and 7 percent borrowed money from a relative," National Association of Realtors spokesman Walter Molony told Fox Business.

Even though there's a plethora of risks involved when people lend money to their children, the deal can be a win-win for both people, according to Fox Business.

Business as usual

If people lend to their children, they should treat the arrangement just like a regular business deal, according to Fox Business. Mari Adam, president of Adam Financial Associates in Boca Raton, Fla., told Fox Business that with so much risk, family members should go through all of the formalities.

Act like a mortgage lender

The child's credit should be examined before an agreement is made. Parents should check all three of their children's credit scores, according to Fox Business.

It's all about structure

With how low interest rates are right now, lending to your child can be a good investment, according to Fox Business. Parents lending to their children will have some flexibility as a lender but the industry rules should still apply. There should be some kind of down payment, somewhere around 5 or 10 percent.

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