“My brother is buying a new home but won’t close on his current home until after the purchase. He asked me to lend him the 20% down payment until he sells his house and can pay me back. He’s financially stable and good with money, but is it crazy to say yes? And if I do, how do I protect myself?”
Why Family Loans Can Get Risky
At first glance, this seems like a simple short-term bridge loan. The house is already on the market, the borrower is financially stable, and repayment should be straightforward.
But here’s the problem: even well-intentioned loans between family can go sideways. Housing markets can shift. Closings can be delayed. Unexpected issues with the existing property can prevent a quick sale.
And if repayment doesn’t go as planned, family relationships can suffer lasting damage.
Protecting Yourself if You Move Forward
If you do decide to lend, treat it like a real loan.
- Formalize the terms. Put the repayment schedule, interest rate, and consequences of default in writing.
- Use legal support. Hiring an attorney to draft an agreement is worth it, especially when you’re talking about 20% of a home’s value.
- Consider security. In some cases, the loan can be secured with property or other assets.
Having a third party involved removes the awkwardness of negotiating terms directly with your sibling and ensures everyone is clear on expectations.
Are There Better Alternatives?
Before you step in as the lender of last resort, it’s worth asking: does your brother truly need this from you?
If he’s financially sound, he may have other options such as:
- A home equity line of credit (HELOC) on his current house
- A simultaneous close with an equity line on the new property
- A securities-backed line of credit
- Even (as a last resort) a short-term loan against a retirement account
If banks or professional lenders won’t extend credit, that should give you pause. Ask yourself: what risks are they seeing that you aren’t?
Final Thoughts
Helping family with a down payment isn’t automatically a bad idea. But if you do it, make sure it’s structured as a true loan—not just a handshake agreement. And before saying yes, confirm that your brother has explored all other financing options.
Sometimes the best way to protect both your wealth and your relationship is by stepping back.
For more on protecting family relationships in financial decisions, listen to the full podcast episode here.