Q: We would like to purchase another home and help our daughter buy ours with an investment of about $200,000 on our part and a mortgage on her part. What would be the best way to do that?
A: If your daughter has good credit, she should talk to your mortgage lender about what kind of loan she can qualify for and how much it will cost. Then, she should get separate financing to help her purchase the property.
As for putting in some cash, it seems to me that what you’re really doing is simply selling the home for less than it is worth.
For example, if the house is worth $400,000 and you have $300,000 in equity, it seems to me that what you are really talking about is selling her the house for $200,000. When she gets a loan for $100,000, you would get $200,000 in cash and use the other $100,000 to pay off her mortgage.
Homeowners can sell their property for whatever they wish. But if you sell your home for $200,000 less than it is worth, you will need to decide whether the “investment” on your part of $200,000 is a gift or a loan. If it is a gift, you need to talk to an estate planner to determine how to structure the transaction without triggering gift taxes that may be required to the IRS. If you are going to lend your daughter the $200,000, you should see a real estate (and perhaps even an estate) attorney to make sure that the paperwork is in order.
Published: Nov 26, 2004