Boston Homes
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How to help your kids purchase a home
Q: What is the best way for my husband and me to help our daughter and husband buy a home? We are able to lend them money toward a down payment, but wonder if this is the best way to help.

A: There are a few different ways to help. Your interest is one. Money is also good.

Depending on your own finances and those of your children, you could lend them money toward their down payment, or for some other purpose such as closing costs.

Giving them cash works best if they can qualify for a mortgage on their own. Your assistance just helps make the purchase more affordable for them.

For example, if you give them money to boost their down payment, it might  help them get a lower interest rate or avoid paying private mortgage insurance. Be aware, however, that lenders like to  see a very transparent money trail, such as a check or bank transfer from your account into the kids’ account several weeks before the kids apply for a mortgage. You will also likely have to sign a letter affirming that the money is indeed a gift and does not have to be repaid.

Any taxpayer can give someone up to $15,000 in value (stocks or money) in 2018 without having to file a gift tax return. So you could give $15,000 to your daughter and $15,000 to her husband, and your husband could do the same. Incidentally, I think it is very important in any family assistance to treat the assistance in a business-like manner. All children should know about the assistance and be treated equally. You should document the assistance and even draw up a contract. A formal agreement will help avoid hurt feelings and miscommunication by defining each  party’s obligations and responsibilities. If you and your husband have sufficient resources, you could also help the kids by financing the mortgage for them. Since you and your husband would be the mortgage lender, you could offer easier terms, such as minimal or no down payment or no closing costs. You can charge a higher interest rate than if the money were in a savings account or CD, but still below market rate for the kids (as long as it is at least the applicable federal rate required to keep your assistance from being considered a gift).

If you can afford it, financing the mortgage for the kids could be a winwin for both you and the kids. Again, a formal contract and mortgage should be drawn up.

If the kids are unable to qualify for a mortgage on their own, you could co-sign the note with them. This is the riskiest option for you and your husband because it means you will be equally responsible for the mortgage with your daughter and son-in-law. It may also prevent you from borrowing money going forward, and could hurt your credit score, especially if the kids  are late on any mortgage payments. You and your husband will also have to apply for the mortgage and will be subject to all the credit, income, debt and other checks that lenders conduct on mortgage applicants.

In addition to the mortgage which you must sign along with the kids at closing, you should draw up a separate contract. This contract should spell out things like who gets how much equity if and when the home is sold, what happens in certain circumstances, such as someone’s death or a divorce, etc.

Linda Goodspeed is a longtime real estate writer and author of “In and out of Darkness.” Email her at: lrgoodspeed@comcast.net.