2 ways you can help your child buy a home

Hands framing house made of money

When I was 26, my mother gave me $4,000 toward closing costs on a condominium in central New Jersey.

The rent on my shabby apartment was getting ridiculous, so I bought a place using a combination of Mom’s gift and my own savings.

Eleven years after I moved across the country, I still own my New Jersey home. Even with the downturn in housing prices, the place has appreciated considerably -- enough for me to someday use it to help fund our son’s college education and my own retirement.

With housing prices still lagging and mortgage rates at historic lows, now is a great time to help an adult child buy a house, apartment or condominium.

There are two ways to do it: Give a gift or make a loan.

A gift can be a good choice if you’d like to chip away at your taxable estate.

This year, individuals can give up to $13,000 each -- $26,000 for a couple -- to anyone without incurring a gift tax. A couple could give $52,000 to a child and in-law.

Larger gifts count against your $1 million lifetime gift-tax exemption, so you might not owe gift taxes on a larger assist.

If you want to reward your child’s good financial habits, offer to match her savings dollar for dollar or to make up the difference once she has saved a certain amount.

A banker will want to make sure that you haven’t borrowed the money and that it’s been in your account for at least 60 days. The bank also will ask for a letter stating the money is a gift, with no expectation of repayment.

A loan might be a good pick if the property purchaser can pay you back and still qualify for a mortgage.

Family loans aren’t allowed for the 3.5% down payment necessary for a government-insured FHA mortgage. But conventional lenders will let a parental loan fund half to three-quarters of a 20% payment.

The bank will also want your child’s monthly debt payments -- including payments to you -- to total no more than 40% of pretax income.

A loan is also a favorite for parents who need the money back. Be careful about that. Don’t loan money to family or friends if losing the money would be a serious hardship or wreck the relationship. If you really need those funds, you’re probably better off not gifting them or lending to them.

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