When it’s time to buy your first home, instead of taking out a large loan, you may decide to ask your parents for the money or, alternatively, give your kids money to buy that home. Banks don’t always see this as gift and it can affect the loan decision.
The Wall Street Journal analyzed if parents should give their children money to buy a home. If you decide to give (or accept) money to buy a home, you’ll need to make the gift far in advance of applying for the loan according to one expert:
One caveat on that front, though: Parents who give money to their children for a down payment should do so far in advance of a home purchase. That’s because some banks want assurance that the money isn’t a loan, though standards vary from lender to lender.
“I like the funds to be sitting in the child’s investment account for a while, so that when the lender receives copies of the last statements the lender has requested, the funds are already in the account,” Ms. Levin says.
If the bank views the gift as a loan, that’s debt that reflects negatively on the borrower’s credit. The loan rate could be higher or denied altogether. Check the link out for other considerations for giving or accepting financial help to buy a home.
Think Twice Before Helping Your Children Buy a Home | Wall Street Journal
Photo by Chris Potter.