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If we're going to borrow money from our parents for a down payment . . .
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Anonymous
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when do we need to actually have the money? We're in the early stages of looking for our first home. We've narrowed down the area we're looking in, crunched our numbers to get a ball park of what we can afford, and are currently getting realtor recs from our friends. I know the first thing a realtor will tell us is to get pre-approved. We have $70,000 for a down payment (looking at house/TH's under $400,000) but have the option of also borrowing $20,000 from my parent's home equity loan. They have a 2.9% interest rate and will just want us to keep up with interest rates until we can also afford to pay back the principal. So we aren't sure that we're going to need the extra cash so I'm not sure that we should borrow it up front before the pre-approval. Can we wait til we actually put an offer in on a house and that have the option of adding that cash to a down payment? Or are there rules about all of this that I don't know? This is all so confusing as a first time home buyer.
Thanks for any advice. |
Anonymous
OP here, one more thing to clarify. Although we will be paying back my parents, they are comfortable with "gifting" us the money, so on paper this will not be another loan, it will just be a gift. |
Anonymous
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OP here, one more thing to clarify. Although we will be paying back my parents, they are comfortable with "gifting" us the money, so on paper this will not be another loan, it will just be a gift. "
Classy, OP. This is fraud. |
Anonymous
OP here, ok I hadn't thought of it that way. I thought it was better to be actually paying back your parents instead of just taking their money. It's not like if we had to take a break from paying or if we ended up not being able to pay them back that they'd hold us responsible for it. So we are all (my parents and us) considering it a gift upfront that my husband and I intend to pay back when we can afford it. If that's not legal then I guess we'll need to rethink it. Thanks for making me see it in a different light, though. |
Anonymous
| I think that fraud is a strong word in this case. If you were borrowing the money with a firm legal obligation to pay it back and then lied on your mortgage application then it would be fraud. If your parents are giving you the money with the understanding that you pay it back if and when you can then I think that you are ok calling it a gift. |
Anonymous
| IMHO, the way to go with real estate is (1) to buy the smallest, cheapest house you can find in the best neighborhood you can afford; and (2) always put 20% down and do NOT borrow more than you absolutely must. I would buy a smaller house in a good neighborhood and make sure I can pay the full 20% rather than borrow from anyone. Parents included. |
Anonymous
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To answer your question though, you want to have it in your account before the length of time that the bank will be looking at your bank transactions. That way there won't be a jump in the amount, and then questions won't be raised. So ask your lender how far back you'll need to have records, and then get the money in there before then.
This isn't fraud for crying out loud. It's money her family is giving her. |
Anonymous
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I don't want to rain on your parade, but even if you received the money as a gift, it does not sound like your parents can afford to have you fall behind/ become unable to pay that money back.
The reason for a minimum down payment is so that you don't get in over your head. By borrowing the down payment you are overleveraging. That means that if the market goes south again or one of you loses a job, you could be really badly stuck. |
Anonymous
This is not fraud at all. They can completely give her that money, however, her parents would have to pay a gift tax on it and maybe OP did not realize that. |
Anonymous
I'm up in the air on whether it is fruad, but you seem to be missing who would be engaging in the fraud. It is the OP, not the parents. When lenders review your finances in order to approve a loan amount, they want to know what assets you have and what liabilities you have. By not reporting the liabiltiy of the loan from the parents, and instead mischaracterizing it as an asset, it is the OP who is potentially engaging in fraud. |
Anonymous
| What is the title of this thread? |
Anonymous
Each parent is allowed to "gift" up to $13,000 without paying gift tax in any given year - so her parents would not owe any gift tax at all on $20,000. |
Anonymous
But then when their daughter gives them $$ back, they'll be taxed on that. If it's not a gift, do NOT treat it as a gift for tax purposes. Talk to an accountant. If it's a loan, you and your parents should treat it as a loan for tax purposes. |
Anonymous
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If you parents don't mind showing their bank statements, then no, you don't have to have the money now. If you wait, then they are going to want the bank statements of where the money came from in addition to your statements. If they don't want to do that, then you may want the money in your account so that it's "seasoned". I just went through this except that I am not borrowing the money, it is actually a gift.
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Anonymous
| The parents will have a very big string on both OP and her husband. This is what I'd have trouble accepting. |