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How to Gift a Down Payment to Your Child

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According to the National Association of Realtors, 28 percent of buyers used gift funds for a down payment from family or friends in 2021. Many of these gifts are given for milestones achieved by adult children, like marriage or graduating college.

One of the biggest concerns for a first-time home buyer is usually cost. Although there are programs where you can get 0-3% down, home buyers can avoid paying private mortgage insurance (PMI) if they put down a certain amount- usually around 20%. If you were wondering how to gift a down payment to your child, keep reading.

Gifting Tax Rule

How much can a parent gift for a down payment? The IRS gift tax exclusion is $16,000 per recipient for 2022. For 2023, it will be $17,000. That means both you and your spouse could gift up to $16,000 to your child and their spouse or fiance. Reach out to a tax expert for details or- if your gift will exceed this amount.

Lender Documentation Requirements

You will want to connect with a mortgage lender about their specific requirements when it comes to documenting a down payment gift. If funds have been in the borrower’s bank account for fewer than 60 days, there may be some extra steps to show where the funds came from. There may need to be a letter written by the gift giver stating who they are, the amount they’re giving, the date of transfer, and if it needs to be repaid. These rules are in place to protect mortgage companies from fraud and default.

Work with Experienced Professionals

If you are thinking about gifting your child with a down payment, contact a financial planner or tax expert for details. Superior Realty is here to help connect you with professionals to make all your home buying and selling dreams come true.

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