Home Purchase Question

[ohiostate]

What is the name of your state? MO

I was hoping that you can get some advice/opinions. My parents want to give some money toward the purchase of my new home. Based on my divorce, they want to make sure that they still get the money back if I go thru another divorce.

Would it do any good from a legal standpoint to have them co-sign on the purchase of the home and have them write a check (for the money they want to give me) at closing rather they give me the money and I write the check? This way they could ask for their deposit back during the divorce.

 

[HomeGuru]

What is the name of your state? MO

I was hoping that you can get some advice/opinions. My parents want to give some money toward the purchase of my new home. Based on my divorce, they want to make sure that they still get the money back if I go thru another divorce.

Would it do any good from a legal standpoint to have them co-sign on the purchase of the home and have them write a check (for the money they want to give me) at closing rather they give me the money and I write the check? This way they could ask for their deposit back during the divorce.

**A: have them buy the property and put it in trust. The trust would own the property and not you.

 

[ohiostate]

I would be able to make the payments and get a IRS tax deduction for the interest payment.

 

[ohiostate]

Oops, I meant to write "Would I .....".

 

[Ozark_Sophist]

If your parents gifted you the money, there is a potential tax liability. In addition, you have to declare where the money for the downpayment came from for the home loan application process. If you reported the downpayment was a gift, it might affect your ability to get a loan. If you fail to report the downpayment as a gift, you commit fraud and when the bank uncovers it, the note becomes due immediately.

Homeguru offers good advice. I would like to add if your parents have not already done so, they should consult with a retirement/financial planner to consider moving all their assets to a trust (including your house). This may reduce the tax liability to you and other potential heirs to offset the interest income tax deduction as well protect your property in the event of another divorce.

 

[LdiJ]

What is the name of your state? MO

I was hoping that you can get some advice/opinions. My parents want to give some money toward the purchase of my new home. Based on my divorce, they want to make sure that they still get the money back if I go thru another divorce.

Would it do any good from a legal standpoint to have them co-sign on the purchase of the home and have them write a check (for the money they want to give me) at closing rather they give me the money and I write the check? This way they could ask for their deposit back during the divorce.

The only way that your parents can be absolutely guaranteed to get their money back if you go through another divorce, is if they are also owners of the home, or...as Home Guru suggested, that the home is owned by a trust. However, getting a trust involved really complicates things and I would not necessarily recommend going that route.

I completely disagree with Ozark regarding the "gift" issue.

Yes, if the amount given is more than 12,000 your parents would have to file a gift tax return, however there would be no gift taxes due unless your parents have exceeded their lifetime gifting exclusion of 1 million dollars.

However, when it comes to a mortgage, a lender is perfectly happy with a down payment that comes as a gift. Its when its not a gift that the lender has a problem.

Personally, I would lean towards a contract between the parties regarding the downpayment, whether that contract is prenuptual or postnuptual. A contract is enforceable as a contract.

 

[nextwife]

The only way that your parents can be absolutely guaranteed to get their money back if you go through another divorce, is if they are also owners of the home, or...as Home Guru suggested, that the home is owned by a trust. However, getting a trust involved really complicates things and I would not necessarily recommend going that route.

Gee, you guys make things complicated. Mom and dad can LEND the DP to daughter and record a mortgage to secure their colateral. As long as poster doesn't default and lose the home entirely via foreclosure, they have a secured interest.

 

[LdiJ]

Gee, you guys make things complicated. Mom and dad can LEND the DP to daughter and record a mortgage to secure their colateral. As long as poster doesn't default and lose the home entirely via foreclosure, they have a secured interest.

Sure they can, however the primary mortgage lender may not be happy about that.

 

[tuffbrk]

Absolutely correct that the primary mortgage holder will not be happy with that. And if the parents LEND the money, as opposed to gifting it, that would need to be disclosed as an add'l debt, otherwise it's misrepresentation on the part of the borrower.

The trust is a great idea, but most mortgage lenders will then require a trust review which results in an additional attorney review fee.

 

[nextwife]

We cannot assume it will be an underwriting barrier without knowing all the loan details.

I have closed many transactions is which the lender was FULLY aware that the seller or a relative was taking back a second to secure a loan toward the purchase. What matters is how much of the borrowers OWN money is going into the purchase. So, for example, if borrower puts down 20% and parents lend the next 20, as long as the payments are taken into consideration in the underwriting process, it is perfectly valid and legal. I've even seen parents DEFER the actual start of payments by ten, fifteen or twenty years on their note. This helps borrower ratios, but protects their principal investment.

 

[tuffbrk]

I don't disagree. Nor am I saying it's illegal - as long as it's disclosed as a debt, the lender needs to be aware of it. And yes- if the OP is investing a chunk as well then it would be looked at no differently than if they were obtaining a Home Equity loan/line at closing..