Need a Hand to Buy a Home? A Gift Toward the Down Payment Can Help

More baby boomers are giving their children and grandchildren portions of their inheritance before they die, often in the form of a gift that is put toward the down payment on a home. “They see their kids renting an expensive apartment, and they want to help them get into a house now so they can build equity and get a start on their future, especially when interest rates are so low,” says Donna Evers of Evers & Co. Real Estate in Washington, D.C. The National Association of Realtors reports a gain in the percentage of first-time buyers receiving gifts from friends or relatives to help with their down payments to 27 percent last year from 22 percent in 1999. However, experts say that depending on the type of mortgage selected, buyers may have to contribute some cash from their own pockets as well. Down payments and closing costs for FHA loans can be paid with gift funds up to 6 percent of the loan amount; and with VA loans, gift money can be used for closing costs up to 4 percent of the loan amount. For conventional mortgages, down payments of 20 percent or more can come entirely from gift money; but for lesser down payments, buyers must contribute at least 5 percent of the sale price. If the money is given to buyers less than 90 days before applying for a loan, lenders may require a gift letter from relatives indicating that the money does not need to be paid back. Under Internal Revenue Service rules, family members can gift a maximum $14,000 without incurring tax consequences for the giver or the receiver; and couples can receive a total of $56,000 from one set of parents. | Read More