Making Home Ownership a Reality

In Buyers by Doug Phelps

Coming up with the down payment has always been a difficult task for most buyers, especially young and first-time folks.  This is especially true in today’s market where a variety of factors – including student loan debt averaging $30,000 for the 20-something market – have made this even tougher to accomplish.

As a result, in recent years there’s been a significant increase in homeownership financial assistance from parents and grandparents.  There’s more than one way to help children get into their first home.

Cash for a Down Payment.  Under current tax laws, an individual can give $14,000 a year to a recipient without paying a tax on the gift. A couple could give an adult child and their spouse a total of $56,000 in one year.

Shared Ownership.  This can get complex, especially if the child is getting a mortgage loan and the lender requires the parents to co-sign the mortgage. Having both the parent and the child on the loan allows the child to establish a credit history and get tax benefits of ownership, just like the parents.  Ownership can be structured in a variety of ways, with the parent providing some or all of the down payment and the child paying some or all of the mortgage and other expenses.

Purchase the property and let the child lease.  In this approach there are no tax benefits to the child.  However, as mentioned earlier, individuals can gift up to $14,000 per person – but this gift doesn’t have to be in the form of cash. A gift could come in the form of a percent of ownership in the title.

Any time money and family are involved; it is wise to consult a tax advisor.