Great Tips For Helping a First-TIme Home Buyer

With home prices low and the most affordable they've been in 50 years, and an $8,000 first time buyer tax credit, now could be a good time for parents to help their children purchase a home or even an investment property. Add to that the high inventory of homes ideally suited for tirst-time buyers here in the Front Range and that spells opportunity.

Even with affordable home prices and tax incentives, still the financial requirements for some would-be first time buyers might be too high. Enter mom and dad, grandparents, or other relatives to provide the financial boost that may be needed. Let's look at a few ways you might be able to help that young person in your family make the shift to homeownership.

Gift The Funds

Give a cash gift–Individuals are allowed to gift up to $13,000 per person in a given year without reporting these gifts to the IRS and therefore incurring gift tax. That means a couple could give each of their offspring (or anyone else you choose) $13,000 apiece in a single year to go toward a down payment. In addition, if you're married, your spouse can duplicate these gifts. The gifts will not count as taxable income to the recipients.

Equity-Share

Give a cash gift–Individuals are allowed to gift up to $13,000 per person in a given year without reporting these gifts to the IRS and therefore incurring gift tax. That means a couple could give each of their offspring (or anyone else you choose) $13,000 apiece in a single year to go toward a down payment. In addition, if you're married, your spouse can duplicate these gifts. The gifts will not count as taxable income to the recipients.

Loan The Funds

The government requires that family members meet or exceed minimum loan rates to avoid having the loan be considered a gift. The rates are currently low. One way to handle this is for parents to use the $13,000 gift exclusion to forgive both interest and principal. If you go this route, match the payback terms with what's realistic for your child. And hire an attorney to draw up a contract that spells out the details.

Co-Sign A Loan

It sounds simple, and costs nothing, but co-signing involves a significant level of risk and trust. You are 100% responsible for the loan if the buyers default. It might be safer to have the buyers make payments to you and you make the payments to the mortgage company. You'll both still get the mortgage credit history, but you'll be the first to know rather than the last if there's going to be a problem.

Use A Trust

Set up a qualified personal residence trust, or QPRT. You’ll need an attorney to handle this transaction, but in a nutshell, parents put the home they want to give their children into a trust. At the end of a pre-set term, the home passes to the children with no taxes due. (Source: The Wall Street Journal)

If you're giving consideration to helping someone get into a home, both parties should exercise due diligence by receiving counsel from experts in the areas of accounting, financial planning, and legal matters. And of course, call me if you want to know more about the tax credit, mortgage programs, or any other real estate related topic!