Tips for Gifting a Home Down Payment to Your Child

Are you in the fortunate position of being able to give your adult child the down payment he or she would need for a home of their own? There are many reasons parents consider doing this: maybe as a wedding present, perhaps instead of paying for a wedding at all, or maybe just to know that their child will have a roof over his/her head.  There are several things to think about in relation to a sizable gift like this.  Keep in mind there are rules and tax regulations pertaining to this type of gift. Knowing these will keep you from making a hefty financial mistake when helping your daughter buy her first home.

The Down Payment Must be a Gift and Not a Loan

If you plan on helping out your kids, the down payment must be a gift and not a loan. To prove this, the parents will need to write a letter to the lender stating that the money never needs to be paid back. 

Otherwise, the lender will factor in the loan amount from the parents into the mortgage approval amount. This may mean you qualify for less on a  Fort Walton Beach home.

The Tax-Free Limits

Remember the limits when gifting a down payment. Any gift of $14,000 or more will result in a tax bill. However, there is a loophole that is possible if done right. The rule says $14,000 per year per donor, so technically, each parent could give $14,000 for a total of $28,000 in a year. 

It’s best to talk to your lawyer and work out the details if you are planning on going this route. 

Provide the Down Payment in Advance

It is important to give the down payment well before your child begins their Fort Walton Beach Real Estate search. Getting this money during the early stages of home buying saves paperwork and logistical headaches. 

The gift does not have to be addressed if the funds have been in your child’s account long enough that the last two bank statements do not show the deposit.

If you are thinking about helping your son or daughter begin their search for a home in Fort Walton, Destin, Santa Rosa Beach, or anywhere else on the Panhandle, give us a call!