Q: My daughter wants to buy her first house, and I'm willing to help her with the down payment to the extent that I'm able. We both have excellent credit ratings and she's been financially responsible, but neither of us is a money expert. I'm nervous about what could happen if an emergency made it difficult or impossible for her to cover the mortgage. As a retiree, I wouldn't be able to bail her out without losing my nest egg. What are the pros and cons of putting my name on the loan and deed, and what conditions should I lay out before giving her the money? I don't want this deal to have a negative impact on my relationship with my daughter.
A: Let's get something straight, Mom. Your overriding concern to protect your own security should have an incredibly positive impact on your relationship with your daughter. There's no need to apologize for making your finances your priority. By being level-headed about this, you ensure that you aren't going to be a burden to her—which is exactly what could happen if you had to crack open your nest egg to save her.
As you can probably guess, I don't want you to agree to be your daughter's safety net. She needs to be able to handle the payments independently. In House Rules , I offer tips for determining how much a first-time home buyer should have tucked away. If your daughter feels she can manage the costs and just needs a hand with the down payment, then I have no problem with your chipping in if you can spare the expense. That means not depleting your emergency cash fund or raiding retirement accounts to come up with the money. And you are not to be listed on the mortgage or title. You can't afford the prospect of being legally responsible for payments if your daughter gets into a bind.
It's also vital to clarify whether you intend to loan her the money or give it as a gift. With a loan, be sure to spell out your specific expectations for when you are to be repaid and at what interest rate. You can further protect your investment by suggesting that your daughter name you as the beneficiary of the home in her will or trust.