Gift vs. Loan: Documenting Down Payment Help for Adult Children

If you’re helping your adult child buy their first home, you’re part of a growing trend. With housing prices making homeownership difficult, the “Bank of Mom and Dad” has become a common source of down payment assistance.

But before you transfer that money, there are legal and financial considerations that could impact your family.

The Mortgage Reality: It Must Be a Gift

When you provide money for your child’s down payment, mortgage lenders require documentation confirming it’s an absolute gift with no expectation of repayment.

This isn’t just paperwork, but a lending requirement. If the money is structured as a loan that needs repayment, it counts as additional debt for your child, affecting their debt-to-income ratio and potentially disqualifying them from their mortgage.

From a mortgage perspective, the money must be a gift. But that doesn’t mean you can’t protect yourself and ensure fairness through proper estate planning.

The Matrimonial Property Problem

Under Manitoba’s Family Property Act, when couples divorce, matrimonial property is divided equally–including the family home and equity increases.

If you give your child $50,000 toward a down payment and they later divorce, that money has built equity that will be split with their ex-spouse. Half of your gift could end up with someone no longer part of your family.

The Fairness Issue Among Siblings

Helping one child with a substantial down payment creates an imbalance in your estate, unless you plan for it.

If you give one child $75,000 for a down payment, does that child also receive an equal share of your estate when you pass away? That might not feel fair to your other children who didn’t receive the same help.

The Estate Planning Solution

While you can’t structure the down payment as a loan for mortgage purposes, you can account for it in your will.

Your will can specify that money given for a down payment is an advancement on that child’s inheritance. When your estate is distributed, that child’s share is reduced by the amount they already received.

For example, if your estate is worth $300,000 and you have two children, but gave one child $50,000 for a down payment, your will can direct that:

• Child 1 receives $100,000 (their $150,000 share minus the $50,000 advancement)
• Child 2 receives $150,000

This ensures fairness and prevents family conflict.

Having the Conversation and Documenting Everything

Be transparent with all your children about how gifts will be accounted for. Document the gift clearly: keep records of the amount and date, include clear language in your will, and update your will when making substantial gifts.

Protecting Yourself First

Before helping your children, ensure you’re not risking your financial security. Your retirement savings should never be compromised to help adult children buy property. It’s okay to help if you can afford it—and okay to say you can’t.

Getting It Right

Helping your children buy a home can make a real difference in their lives, but it needs to be done thoughtfully with proper documentation and estate planning.

If you’re considering providing down payment assistance, talk with us first. We’ll help you structure the gift in a way that complies with mortgage requirements while protecting your interests and ensuring fairness.

Give us a call at (204) 925-1900. Let’s make sure your generosity doesn’t create unintended problems down the road.