As parents, we all want to help our kids reach their goals. But can you help them when it comes to homeownership goals? Good question. I often have clients ask if they can gift a downpayment for their kids? And it a good idea? We’ve got your answers, as well as a tiny voice of caution -
The short answer is YES! For parents who have the funds and want to help their adult children purchase a home, gifting a down payment is a way you can make those homeownership dreams come true. So here’s what you need to know:
- Your gift doesn’t affect the borrower’s interest rate. The borrower must still demonstrate adequate income to qualify for a mortgage.
- If the gift is recent, the borrowers must be able to prove the origin of the funds and provide a letter or other documents affirming that the money is indeed a gift and does not need to be repaid.
- Under the Internal Revenue Service's annual gift tax exclusion, one person can give up to $14,000 to another person without triggering a gift tax.
All this being said, if you are planning on going this route, it’s a good idea to make sure you understand your adult child’s finances and the reason why they haven’t been able to secure the funds independently. If your children are going through a divorce or are currently unemployed, then tying them down to a permanent location may not help. If they are dealing with crushing credit problems, then it may be more important to help them out of that situation before they jump into a mortgage. You’d hate to have your gift feel, well, less like “a gift” a few years down the road. Remember that each situation is different, so having an open, honest conversation with your child is crucial before writing a check.
It’s also a good idea to consult with a financial advisor and make sure that you can comfortably afford to help without jeopardizing your own financial security. It would be a shame if, in your attempts to help, you end up in a bad situation yourself. Nobody plans on things going south with a real estate transaction, but it has been known to happen, so it’s best to be prepared.
If you have more questions, call to set up an appointment with one of our BHURDinUtah agents. We love helping families explore their options and decide their best path to homeownership. In fact, we’ve been privileged to help children (and even grandchildren!) of the same family into the homes of their dreams. And we’d love to help you into yours.