Helping Your Kids Buy A House
By Mark & Annmarie Lenson
People Like Us…….People Trust Us
Put Our Experience On Your Side……..We Sold Almost 800 Homes
This matter could be a five-part series, if we were to get into the nitty gritty, so let it suffice that we will only scratch the surface of the subject.
Assisting children is one of the most wonderful gestures any parent can extend to a loved one.....but it must be done with both eyes open. We strongly suggest consulting your CPA and/or a real estate attorney and possibly an estate planner.
It appears that young people are finding it more difficult than ever to afford their first home. Prior to tapping on Mom and Dad for assistance, ask a seasoned real estate agent whom they would use as a reputable mortgage broker. That would be a good place to start looking for a loan. There are a variety of first-time home buyer programs, FHA, VA, and possibly private financing avenues that may be of value. If all else fails, put the pride aside and ask Mom and Dad for assistance. It happens more than you know.
Current tax laws do not impose tax on a cash gift (I am not talking about the $10,000 yearly per child exclusion) to a child when those funds are used to purchase a home for personal occupancy. There are tax implications if the funds are used to purchase an income-producing property.
A parent may "gift" a down payment when this down payment is not going to be repaid at a later date. If the funds are to be repaid, the funds become a "loan". This typically triggers a mortgage, a promissory note, and knowledge of the loan from the lending institute that is planning on putting a first mortgage on the property.
If a parent does not have the cash available but has equity in their own home, they may be able to take the money out in the form of an equity loan or possibly use the equity as a form of collateral for their child's home. This goes the same for stocks, bonds, CD's, and other similar instruments.
Other considerations are: What happens if a child can not keep up with the mortgage payments? If the child or the child's spouse dies? If there is a divorce? Who writes off the taxes on the home? If someone liens the house, how does that affect the parent?
Helping your kids is a grand gesture and a wonderful thing parents can do. It must also be done in an informed manner. All it takes is calling your CPA and/or real estate attorney, and possibly an estate planner to put the package together in an informed, proper manner. The impact of assisting young ones is worth doing and life-changing.
