Q. We would like to purchase another home and help our daughter buy ours. What is the best way to do this? – Nancy
A. Nancy, let’s start at the top. If your daughter has good credit, she needs to speak to a mortgage lender – perhaps even the lender you use – to see what kind of loan she can qualify for, how much money the lender will give her and how much it will cost each month. Once she gets a few of these numbers from the lender, she can apply for her loan.
Now, it’s your turn. When you sell your home to a child, and you’re willing to invest some cash, it seems to me that what you’re really doing is selling your home for less than it would be worth on the open market. Which is fine. You can sell your home for whatever you want. What you might want to do is gift your daughter some cash for the down payment. The IRS permits you to give someone up to $11,000 as a tax-free gift each year. So you and your husband could give her $22,000 this year and $22,000 after January 1st, if you need to do that.
Now, it’s time to tie it all up. You’ll need to provide a gift letter to your daughter’s mortgage lender that states the cash you’ve given your daughter is a gift and you don’t expect it to be repaid. She needs to get her mortgage approved, and you should hire a real estate attorney to make sure the documents are right and the deal gets closed.
Dec. 4, 2004.