Downpayment for sibling

[kdeva]

Hello,

I am in a bit of an awkward situation with my sibling.

My sibling lives in a HCOL area with spouse, no kids. They are interested in purchasing a brand new $1.2M home in an excellent school district, but the mortgage will be 3.5X their combined gross income. So, my sibling called to discuss this situation and I advised against the purchase and recommended a more modest home for $700-$800k which wouldn't stretch them financially. But, apparently the $800k homes are 30 or 40 years old and aren't as appealing to them. They don't have kids now but are planning to start a family soon, so I tried conveying some facts about childcare costs etc. to hint that a $1M mortgage with $5.5k per month PMI will be unsustainable in the long run once they have a family. But, apparently my sibling's spouse really loves that new property and doesn't want to live in a 30 or 40 year old home.

They have only saved up half the money for downpayment and they want to borrow the other half from me. My husband and I have enough and loaning $100k to them wouldn't stretch us by any means and my husband has no problem with it as along as we do it legally and file for gift tax. My sibling didn't tell me when and how they are going to pay it back since most of their income will be spent on the mortgage. I didn't ask either. However, as I thought more about it, I wonder if I would be encouraging bad behavior by giving the downpayment money on a house that I feel is beyond their means.

My sibling and I have some history with money. I partly paid for my sibling's college when I myself was a grad student by drastically economizing and living a very frugal life. I never asked for that $30k back and I presume that my sibling considered it as a gift from me (this was before I was married). I was very happy to help out at a time of financial need, I considered college education a necessity, and I didn't want my sibling to take out a student loan.

Coming to the current situation, I am not sure a large house is a necessity and I really don't know what to do. I don't mind lending, but I know lending to family always ends up affecting your relationship. At the same time, I am not sure I want to gift $100k especially as it encourages bad behavior.

I want to separate emotions from logic, but it is very hard to keep them separate. I am asking for advice from people who have had to help out family members financially. Did you loan or gift money? If you lend money, did you charge an interest and file gift tax? Did you set payment terms (x months or years)? How do you even have this conversation with a little sibling who you have loved and who has always looked up to you?


PS> I am not asking for whether my sibling is making the right decision about the 3.5x mortgage since I feel that's unwise.

[CordMcNally]

You know the right answer...don't get involved. If a bank won't give them the money then they probably shouldn't be buying a house.

[Peds]

Since it's unwise they should do it themselves.

[Panscan]

So you paid for their college, you’re going to “Loan” them money to buy too big of a house... guess who they’re going to go to when they run out of money ?

cut the cord

[VagabondMD]

The answer is no.

Since they do not have kids, they should continue to rent, save money, and perhaps improve their income. When they have kids ready to enter kindergarten in 5+ years, they may be in a better financial position to afford the house that they want now. Or maybe not, but that is not your problem.

PS Your husband is a saint. There is no way that I would go along with this for a sibling of my wife.

[StarTrekDoc]

You know the right answer...don't get involved. If a bank won't give them the money then they probably shouldn't be buying a house.

This.

It'll be another lifeline that's a lot more than 30k this time.

[Tim]

"my husband has no problem with it as along as we do it legally and file for gift tax."
Seems like step 1 is face up to the fact that it is a gift.
Step 2 is to jointly decide if you want to participate in a terrible financial decision. What could go wrong? This is the deal killer. Hard no.
You invested in his education, but there is not need to invest in a financial disaster.

[Anne]

This is a very easy no, and I’m someone who does not have the hard line against giving money to family that others have.

I would not hesitate to give money to my sibling or my husband’s sibling if there was an actual pressing need. A house they can’t afford (because a 30-40 year old house is “not appealing”?!?)is not a need. I also can’t imagine them asking for something like this.

[billy]

This is a very easy no, and I’m someone who does not have the hard line against giving money to family that others have.

I would not hesitate to give money to my sibling or my husband’s sibling if there was an actual pressing need. A house they can’t afford (because a 30-40 year old house is “not appealing”?!?)is not a need. I also can’t imagine them asking for something like this.

this. If my siblings and nephews are about to go hungry, I'll buy them a week of groceries at shoprite. I will not buy them emu egg omletes and truffles from whole foods https://www.elitedaily.com/envision/...e-food/1173730.

[abds]

Stop enabling them.

[pierre]

Sounds like it's more likely to turn into a gift than a loan. I wouldn't do it.

[SerrateAndDominate]

Family and money are never easy things in combination. Bad mixture of emotions versus basic finances.

Based on your gift of college tuition, it sounds like the sibling should have leveraged that amazing opportunity into something with a high enough income to justify this lifestyle. I'm in a very LCOL area so it's hard for me to fathom living in a $1M+ home and even more difficult to expect a loan (likely one not paid back) of $100k. It's awesome that $100k won't affect you much, but that's a boatload of cash. Even with an iron fist contract (which may offend them), it just isn't a smart move.

[lakeswim]

I've seen first-hand how giving money to family members like this is actually bad for them in the long run. It's hard to see it now, but down the line it reinforces bad financial (and life) decisions because they know you're always there as a fallback.

Since you say this sibling looks up to you, I would make the tough choice here and say no - which will force some personal responsibility on him/her.

[ParleG]

I can understand helping for education so he can stand on his own feet.
This is a want not need.
It is going to affect your relation with him either way at this point.
just say No

[White.Beard.Doc]

When love is involved, no is so much harder than yes. But when no is called for, you have to be strong.

I would only give the 100k in this situation if it was an outright gift. If you have that kind of money and you wish to give a generous gift, then go for it. Otherwise no way. How will this effect your relationship when they cannot pay on the loan you gave them? Or when their future child has a need that surpasses their desire to pay you back? They will be judging your financial situation and saying you are so cheap for wanting them to pay back the loan when you have so much.

Is helping them out with a loan worth risking destroying the relationship for life? That is why the only way you should say yes is if you want to gift them the 100k.