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credit doc needed

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Anonymous
Not applicable

credit doc needed

my father wants to help me with downpayment for my first home....however his fico is low!

 

he has his own business and has amassed 5 properties over the past 30 years.  3 properties are paid off and 2 still have mortgages.  the mortgages are relatively small compared to the equity he has.  one has a balance of 75k but an appriased value of over 400k.   he was always the kinda guy who would stretch out payments instead of dipping into savings.  he never bought a car outright, he just financed.  he never bought a property outright, he just financed....from outr own personal decisions he decided  'what good is a couple hundred grand in equity if we cant use it to make more money." 

 

my father is far from a real estate mogul, he just knows its a good place to park some money...and considering the houses around where i live are selling for half of what they sold for 3 years ago, now is the time to buy...

 

i have my own savings and he wants to help via using some equity he has.  how does this work?  should he get a fico boost before he applies to refy?  what are his options?  i think the amount we are looking to cash out is in the 20-30k range...

 

 

Message 1 of 4
3 REPLIES 3
llecs
Moderator Emeritus

Re: credit doc needed

He can get a refi and I believe forward you the money as gift money. If you do that, be sure to open an account in his and your name if planning on buying soon so the gift money doesn't come into question. It would be quite clear that it came from him if you had a joint account together.

 

Increasing FICO is only necessary if his FICO needs to be increased.

 

It certainly can be done, but be careful about any tax consequences. If he gives you anything over $13,000 for 2011, he has tax consequences on the difference. The annual gift tax exclusion for 2011 is $13k. Now he can give $13k to you AND your spouse, if married, and that helps some too. If you are married and go over $26k  (or $13k for singles), there is a lifetime gift tax exclusion he can apply it towards, but see an accountant for more info and it certainly can be done. DW and I just bought our first home. Her father offered to give the equity of a secondary home of his for about $250k as a down payment for a new home. Very generous and in the DC area, it almost pays for a half of home. But we appreciated the offer. Then we looked into the tax consequences and realized that his tax bill from doing so would have been way too much and settled on a lower down payment. ETA...you are also pressed to the end of the year. He can give you $13k (or $26k if married) on December 1, and again on January 1 and still be OK.

 

He should also consider the tax consequence if he is investing in real estate as a business. IRS guages that business activity as passive or non-passive. If he's in the business of real estate to make money and he deducts the interest income for that home he wants to take equity out of, and wants to write it off, there's a set of rules for that. And I don't think he can write it off anyway since he's handing you the money vs. re-investing it into expanding his real estate business. Again, see an accountant.

 

 

Message 2 of 4
Anonymous
Not applicable

Re: credit doc needed

ok i understand tax liabilities....in theory he can gift 13k in december and another 13k in january and still have no tax consequences??

 

what if he gifts to me and dont plan to make an offer for 6 months for watever reason?!  i mean why is there a time restriction on when the money is gifted and when it is used...i would imagine the money would be used within a 6 month period...

 

the money would need to be opened in a joint account??....

Message 3 of 4
llecs
Moderator Emeritus

Re: credit doc needed

Check with an accountant, but yes, the annual exclusion is based on the calendar year. When you use it is up to you. That wouldn't be an issue.

 

I threw the joint account in there because when you apply for a mortgage, one of the supporting docs you'd need are past statements from accounts from which you'd use for a down payment, deposit, etc. YMMV based on lender, but mine asked for the past 6 months. If you have a deposit, like $20k, that'll raise some red flags. You'd have to source where the money is coming from. To get your lender to lower those red flags, one way around it is to open a seperate account in both your names. That way you can freely say that it was gift money and the source would be quite clear since it is a joint acct. Of course check with your lender first.

Message 4 of 4
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