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Should You Give Your Kids a Mortgage?

The pros — and cons — of lending money to your children

Consider your other needs for the money

Assuming the legal hurdles sound manageable, there are a few other things to consider.

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First, ask yourself whether you can afford it, says New York financial planner Gary Schatsky, founder of the firm ObjectiveAdvice. You need to be realistic about whether this is money you're going to need yourself. Had you earmarked it for retirement? Or would your kids otherwise inherit it anyway? If you had counted on this money for your later years, lending it to your kids is not the best idea.

Manage expectations — yours and your kids'

One big question to consider: "How are you going to feel sitting across the table at Thanksgiving from someone who owes you $100,000 and is not always timely with payments," says Colorado Springs, Colo.-based financial planner Linda Leitz.

That goes both ways, she adds.

If, as an adult child, you believe your parents are going to be second-guessing whether you should be going on a European trip, getting a housing loan from them may not be a very good idea. "A mortgage company isn't going to call you and tell you they don't like what you're spending on vacation."

Don't decide during a crisis

You need to think about it rationally. "The worst time to become your child's lender is in a crisis situation," Burke says. At that point, the child is often turning to the parent as a last resort. It's awkward and uncomfortable and there's a great temptation to just try to get it over with as quickly as possible. You risk neglecting both discussions and important paperwork — creating a recipe for disaster.

—With Arielle O'Shea

Jean Chatzky is the author of several books, including Money Rules.

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