Should Mom And Dad “Gift You” With A Down Payment For A Home?
OK, let’s face it: many of us got a little help from mom and dad when we bought our first homes back before zero-down loans. Guess what, it’s 1980 all over again. Tough Love in lending and we are back to ten, twenty percent down payments, tough for kids fresh out of school, loaded with education debt, to come up with. No wonder lenders are seeing a surge in kids asking M&D for help with down payments. Keep in mind, the help cannot be a loan and you must document the down payment gift with a “gift letter.” My fave mortgage blog has all the details on the right way to do a gift letter, and will even email you a sample. To satisfy underwriter’s increasingly unsatiable appetites, you’ll need the gift letter, the gift in a cashier’s check, and no co-mingling of funds on deposit.
This is not new: the tradition at Romanian weddings was to pin money on the bride (a tradition I’d like to revive), that money going to help the couple buy their first home. There are also many ways parents can help their children buy a home without giving them a chunk of cash. For example, we let my daughter and her fiance live with us while they saved up for a down payment. You can also cover the cost of property improvements on the new home once they move in.
Call me Debbie Divorce Downer, but I am a member of the 50% divorce rate generation: what do you do if the marriage doesn’t last? Let’s say you “gift” Johnny and Susie $20,000 for a down payment on a cute M Streets cottage. They split after two years. Texas is a community property state, home is to be sold and equity split. My take: you have just gifted your son-in-law $10,000. Am I correct?
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Not sure about the answer to your question, but instead of a down payment, my neighbors just bought their 20-something-year-old daughter a 3-bedroom home in the park cities to the tune of $700K. Talk about a nice gift.
Whatever happened to working hard to get where you want to get? Call me old-fashioned, but does no one feel any sense of accomplishment at working hard to scrape together a down-payment on a house they can AFFORD, build equity in it, and maybe trade-up later?
Dispense with the big expensive over-the-top wedding and put that money towards a home.
That’s such an interesting point. I agree with Gadfly, over-the-top weddings are such a waste of money.
That way if you do give money towards a down payment: if they end up getting a divorce, your child will at least have something come from the marriage instead of pictures that they will probably burn anyways.
My in-laws gave my wife and I $30K for our wedding, we used $8,000 of it for a destination wedding, and the rest for a down payment on a house. Working out great. I think this is more of the trend now days…
Most of my friend’s parents have paid for my friend’s rent and mortgage since we graduated from High School. That’s not my story. I think that the gratitude for a home comes from what you have put into it: several months and years of work to attain a down payment, weekend trips to the hardware store to fix the capricious issues that the landlord used to take care of, and the first housewarming party, where gifts are not only welcomed with open arms, but registries for said gifts have already been registered and are available as a pdf download from that store! Who knows? Maybe I’m wrong, but I do know that I appreciate things way more knowing how much work was required to achieve such blessings.
I agree with Jaded. My wife and I worked, bought our own house, paid for our own wedding, etc. We fixed the house up, blah blah blah… I just feel like we appreciate it more than some of our friends that have had everything “handed” to them. That’s coming from us and comments from one of them!
Give your children lots of love. I guess money is OK, too. Some! I suppose it’s a grey area. A long life is not guaranteed. The final curtain call is sometimes sooner than you envision.
A new daugher-in-law or son-in-law can be problematic. If I had reservations about the person, I wouldn’t fork over as much money.
In writing, state that you are giving money to your child. Gifts are not community property under Texas law.
I think it is okay to ask your parents for a money loan. These people are the future of our economy, and they are still helping the economy as they will need to take out mortgages, but this will keep us from entering into a completely stagnant period. We need to keep the money flowing, and for some people, this is the best way to do it.
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