Thinking of gifting a mortgage down payment for your child who is in the process of purchasing his/her first home? Even though mortgage down payment gifts are often times given as wedding presents, they are a bit more serious than they appear. There are certain things mortgage lenders will be looking for when considering your child for a mortgage, so take note of important requirements.

1. Document the Gift- The recipient of a mortgage down payment gift will not see any effects to his/her interest rate when receiving the gift, but the recipient must show the ability to provide funds for the down payment of the mortgage in order to qualify for a mortgage. When your child approaches a lender, he/she will want to give the lender documentation of the gift in the form of a letter. The letter does not have to be extremely formal nor long, but should be written by you (the family member giving money) and must include the following items:

1. Your name and contact information.
2. Your relationship to the recipient.
3. The date of the gift.
4. The exact dollar amount you are gifting to the recipient.
5. A statement confirming that you do not expect your child to repay you for the gift.

The most important part of a mortgage gift letter is this last point-that you do not expect repayment. Lenders will want to see that recipients are able to pay their monthly mortgage payments and are not bound to any debts with you- the parent or family member.

2. Proof of Gift- The gifted funds should be deposited into the child’s bank account. The lender will want to validate that your child actually has the amount needed for the down payment in their possession. A copy of bank statements is a common thing they will request to verify the availability of funds

3. Gift and Taxes- Under the 2015 annual gift tax exclusion, you are able to give away up to $14,000 per person without incurring a gift tax. If your child is married, you can give away $14,000 each, to your child and spouse, for a total of $28,000. Additional amounts can be gifted, without paying a gift tax, by utilizing a portion of your available lifetime exclusion amount.

It should be noted that gifts are permanent—once the gift is given, it is irreversible. Before you go ahead and decide to help your child through a gift, seek counsel from your accountant for questions and concerns regarding how this gift will affect your finances and taxes.

There are other ways to help your child purchase his/her first home, too. Read our blog: “Help Your Child Purchase a Home with an Equity Share Agreement” for more information.

Questions? Contact any member of our Private Client Services Group.