Gifting a down payment is a way that parents can pass on wealth to their children and allow them to purchase property of their own. This type of down payment assistance is relatively common, with 28% of first-time buyers using a gift of funds.
If you wish to gift your child with a down payment, follow these steps:
Talk to a tax professional
Before you gift a down payment to your child, talk to a tax professional. They will be able to walk you through the process and let you know how much you can realistically afford to gift. In 2022, you and your spouse can give your child up to $16,000 each, for a total of $32,000. Doing so will not trigger a gift tax.
Gift the money early
The best time to gift your child a down payment is a few months before applying for a mortgage loan. That way, the money can “mature” and show the lender that it is from a legitimate source.
Write a down payment gift letter
Then, you’ll have to write a down payment gift letter that your child will give to their lender. This letter includes information like:
- Your spouse’s name, if applicable
- Your contact information
- The gift amount
- The intended purpose of the gift
Along with the gift letter, provide the lender with statements showing the movement of the funds from your account to your child’s.
At Merchant of Homes, we can help you and your adult child navigate purchasing real estate. We will also guide you to local lenders who will show you where to start and guide you through eligibility requirements for down payments and monetary gifts.