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Gifting An Adult Child A Down Payment – Bankrate.com

Homeownership is a route to building wealth, and gifting a down payment to your child can help set them on the path. Before committing to a down payment gift, however, carefully consider the impact on your own finances.

What …….

Homeownership is a route to building wealth, and gifting a down payment to your child can help set them on the path. Before committing to a down payment gift, however, carefully consider the impact on your own finances.

What to know about down payment gifts

The practice of gifting a down payment to a child is fairly common. In fact, 28 percent of buyers used gift funds from family or friends for a down payment in 2021, according to the National Association of Realtors. Many of the adult children who receive a down payment gift are given the funds for major milestones, like graduating college or getting married.

For parents, making a down payment gift represents one of many ways to transfer wealth, often with fewer tax implications.

For tax year 2022, you and a spouse can each gift your child up to $16,000, for a total of $32,000, without triggering the gift tax. There is a lifetime exemption beyond this, however (at the federal level, $12.06 million in 2022), which means even if you give your child more than the annual limit, you likely won’t have to pay gift tax anyway. (The exception might be if your state imposes estate or inheritance tax.) As with any major financial move, speak with your tax professional to learn what’ll apply to your situation.

Gifted funds aren’t a problem for mortgage lenders, either — you can even gift an entire down payment instead of a portion. However, your child’s lender will take steps to ensure the money came from a legitimate source and that you don’t expect to be paid back, so you’ll need to be prepared to cooperate in that process.

Should you gift your child a down payment?

Particularly in an environment with high rents and student debt burdens, it’s challenging for young people to save for a down payment. Helping your child buy a home can get them started building equity sooner, contributing to their long-term financial wellbeing.

“Gifting a down payment can be a very smart thing to do that benefits your kid for the rest of their life,” says Chaim Geller, CEO of HelpMeBuildCredit.com.

Gifting a down payment could also be a better alternative to co-signing your child’s mortgage. If you co-sign the loan, you’ll be on the hook for the payments if your child can’t make them, but you won’t have any stake in the home.

“Making a gift is much more predictable than co-signing and is very different than having your credit liable for 30 years,” says Geller, referring to the typical …….

Source: https://www.bankrate.com/mortgages/gifting-child-down-payment/

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