Buying a house for a child

[Dash man]

We bought a $312k townhome for our younger son and his family during the height of Covid, back in March 2020, closed in June.
We keep the house in our name, but each of our sons will get the house they live in after we pass with the stepped up basis.
It’s increased about $130k in value in three years.

[tulak]

Quote:

Originally Posted by Dash man We bought a $312k townhome for our younger son and his family during the height of Covid, back in March 2020, closed in June. We keep the house in our name, but each of our sons will get the house they live in after we pass with the stepped up basis. It’s increased about $130k in value in three years.

What if they want to move before you pass?

[Dash man]

Quote:

Originally Posted by tulak What if they want to move before you pass?

I told them they can move if they choose and we’ll deal with selling the home. If they choose to move to a different home in the area, the sales money can be used towards that. If they choose to leave the area, we haven’t discussed. But they like it here in PA. They were getting crushed by rising rents in Renton, WA, and couldn’t imagine being able to afford a home in the Seattle area. They also like being near family while raising our grandson. Now that DDIL’s mother has moved in with them, they like us being able to help get her to appointments if needed. Of course, we love having them nearby and watching our grandson grow up and he loves his cousins.

[tulak]

Quote:

Originally Posted by Dash man I told them they can move if they choose and we’ll deal with selling the home. If they choose to move to a different home in the area, the sales money can be used towards that. If they choose to leave the area, we haven’t discussed. But they like it here in PA. They were getting crushed by rising rents in Renton, WA, and couldn’t imagine being able to afford a home in the Seattle area. They also like being near family while raising our grandson. Now that DDIL’s mother has moved in with them, they like us being able to help get her to appointments if needed. Of course, we love having them nearby and watching our grandson grow up and he loves his cousins.

That’s great. Thank you for sharing.

[MarieIG]

Quote:

Originally Posted by Time2 We're in NW Florida, $300K will get you a 3bd, 2bth house with a 2 car garage. My daughter is highly motivated, she understands she is very lucky and is grateful to be earning a high income with zero student debt. We also bought* her and her husband a repo'ed fixer upper house and gave them a two year mortgage. They fixed it up in a year and got it remortgaged. She won't have any problem. " The house was an FHA repo. Through no problem of the kids, the closing was delayed a couple times, then the closing agency merged with another and the stopped closings until they got that all in order. So I stepped in bought the house and gave them a mortgage. They ended up with having two appraisals because of the delay, the second one was $40k higher, just while waiting to close, (hot market anyone?) She was still in dental school 400 miles away, but they just went house looking and saw this repo on a canal out to the Gulf of Mexico. The lost in the first round of bidding, then the guy that won somehow fell through and they got to bid a second time.

I remember that. The only issue I have is: Let your daughter and son-in-law pick up the tab when you go out to dinner from now on! (You've more than earned it, they can afford it thanks to you and your DW, and it's good for them to give as well as to receive.)

[euro]

Similar situation to OP. I sold one of my rental properties ("starter home", 1100 sft 3bed/2bath) to my son for about $250k total. Gifted a large downpayment and took back a $100k note so that he has SOME payment responsibility but a very low monthly payment. A few years ago, the minimum interest the IRS allows for longterm loans was around 2%, so his payment is something like $150/mo. This seems to be working out really well for us.

[Time2]

Quote:

Originally Posted by MarieIG I remember that. The only issue I have is: Let your daughter and son-in-law pick up the tab when you go out to dinner from now on! (You've more than earned it, they can afford it thanks to you and your DW, and it's good for them to give as well as to receive.)

That's a good point we are living on comfortably on $70k to $80k, while the two of them are earning between $250k and $300k. I doubt my wife will see it that way, she's Asian and, it's always for the kids!

[DawgSavr]

Timely post. We are in the process of looking for a starter home for our 29 year old son as well. He sleeps and eats at home, but other than that he works all the time so we rarely see him. He is very conservative and has saved a considerable amount of money, distributed across various buckets. Retirement (401K, TradIRA, RothIRA), Taxable Brokerage Investments, HSA, House DownPayment/Closing Cost Savings and Emergency Fund. He has been preapproved and understands the price range he needs to be in to not be house poor. However, we are still experiencing bidding wars on homes here in the midwest and he's been outbid numerous times. Especially with all cash offers. He does not want anything given to him, however, we do want to help him out while keeping the money in the family so to speak. So my wife and I will be the Bank and purchase the house with Cash and in turn provide the mortgage to him at a substantially reduced rate. We are looking to leverage National Family Mortgage (www.nationalfamilymortage.com) and charge the minimum AFR rate. That way he builds equity and can deduct the interest paid. Yes, we will have to claim the interest as income, and likely could make a bit more than the minimum AFR rate leaving it in a high-yield cash/CD account but that's not the point. Our goal is to help him get a quality home in a very competitive market that he can live in, learn new skills of how to maintain/repair/upgrade a home with sweat equity, while having skin in the game to build equity in the event he decides to sell the home. If something should happen to his mother and I in the future and he still is in the house, the remaining balance is free and clear and just becomes part of his inheritance share. So we have a plan...it's just finding that right piece of property in that good location that is the challenge right now :-)

[Sunset]

Quote:

Originally Posted by DawgSavr Timely post. We are in the process of looking for a starter home for our 29 year old son as well. He sleeps and eats at home, but other than that he works all the time so we rarely see him. He is very conservative and has saved a considerable amount of money, distributed across various buckets. Retirement (401K, TradIRA, RothIRA), Taxable Brokerage Investments, HSA, House DownPayment/Closing Cost Savings and Emergency Fund. He has been preapproved and understands the price range he needs to be in to not be house poor. However, we are still experiencing bidding wars on homes here in the midwest and he's been outbid numerous times. Especially with all cash offers. He does not want anything given to him, however, we do want to help him out while keeping the money in the family so to speak. So my wife and I will be the Bank and purchase the house with Cash and in turn provide the mortgage to him at a substantially reduced rate. We are looking to leverage National Family Mortgage (www.nationalfamilymortage.com) and charge the minimum AFR rate. That way he builds equity and can deduct the interest paid. Yes, we will have to claim the interest as income, and likely could make a bit more than the minimum AFR rate leaving it in a high-yield cash/CD account but that's not the point. Our goal is to help him get a quality home in a very competitive market that he can live in, learn new skills of how to maintain/repair/upgrade a home with sweat equity, while having skin in the game to build equity in the event he decides to sell the home. If something should happen to his mother and I in the future and he still is in the house, the remaining balance is free and clear and just becomes part of his inheritance share. So we have a plan...it's just finding that right piece of property in that good location that is the challenge right now :-)

I was going to look at this as it seems you are adding a complication and an expense for simply providing a mortgage that a lawyer could write up easily. That is what my Mom did.
Simply had the lawyer write and register the mortgage, no ongoing fees etc.

However the domain is gone missing (and doesn't seem to be USA based at all) :

[silvor]

I know it can depend on the state and you can work with a trust, but make sure if/when he marries the house is his.

[ncbill]

Quote:

Originally Posted by Sunset I was going to look at this as it seems you are adding a complication and an expense for simply providing a mortgage that a lawyer could write up easily. That is what my Mom did. Simply had the lawyer write and register the mortgage, no ongoing fees etc. However the domain is gone missing (and doesn't seem to be USA based at all) :

This link works

[euro]

Quote:

Originally Posted by Sunset I was going to look at this as it seems you are adding a complication and an expense for simply providing a mortgage that a lawyer could write up easily. That is what my Mom did. Simply had the lawyer write and register the mortgage, no ongoing fees etc. :

Agree - I don't quite understand the purpose of involving a third party. The son will be able to deduct any interest he pays to the parents and yes, the parents will report the interest as income. In our case, I did a simple "interest only" 30 year mortgage (which lowered the monthly payment even more, of course), because I figured that my son will inherit the property eventually anyway, but you can, of course, set up any (legal) terms you wish. The closing attorney can easily set up the deed/mortgage papers for a very small fee.

[euro]

Quote:

Originally Posted by silvor I know it can depend on the state and you can work with a trust, but make sure if/when he marries the house is his.

This is a personal choice, of course, so no "right or wrong", but my personal philosophy is that if I make a gift, I cede all future control. In other words, I gift a house to my child (or work financing, loans, etc), my child decides what to do with it. If they want to do a prenup to secure the property ownership, that's fine. If they want to get married and bring the property as community property into the marriage, then that is fine with me too.

[DawgSavr]

Quote:

Originally Posted by euro Agree - I don't quite understand the purpose of involving a third party. The son will be able to deduct any interest he pays to the parents and yes, the parents will report the interest as income. In our case, I did a simple "interest only" 30 year mortgage (which lowered the monthly payment even more, of course), because I figured that my son will inherit the property eventually anyway, but you can, of course, set up any (legal) terms you wish. The closing attorney can easily set up the deed/mortgage papers for a very small fee.

Thank you for the additional insight. I will talk with a lawyer as another option. The benefits of this forum at it's best to throw out ideas and to learn from experience of others!

[DawgSavr]

My apologies...I had a typo in the original post. Correct URL is: www.nationalfamilymortgage.com

[Deuce]

Housing prices will not recede.

[gwill1010]

Quote:

Originally Posted by racy We bought a small house for our 'challenged' DS and daughter-in-law two years ago. We own it and pay the taxes; they live in it rent free. We let our other, successful, DS know what we were doing which he understood and agreed to. We bought it with my IRA money. This bumped up our income so we're paying IRMAA this year.

If either of you get audited by the IRS you're not going to be happy. My wife is a CPA and has researched this. Weather he pays you rent or not you're supposed to claim a fair market value monthly rent as income. Our son lives in the condo we own, but he does pay rent.

[gwill1010]

Quote:

Originally Posted by Dash man We bought a $312k townhome for our younger son and his family during the height of Covid, back in March 2020, closed in June. We keep the house in our name, but each of our sons will get the house they live in after we pass with the stepped up basis. It’s increased about $130k in value in three years.

Do they pay rent and are you declaring the income? The IRS expects you to claim a fair market income weather they are paying you or not. Best of luck.

[gwill1010]

Quote:

Originally Posted by Time2 When the time comes, I'm trying to figure out the best way to get him in a house, I could just buy the house and give it to him, I could have him get the mortgage and then we could gift him $17k or $34k a yr to pay his mortgage. I'm sure there are other options. I'm not willing to entertain, we should not buy him a home. We want to.

If you give someone a house don't they have to declare it as income Can you gift more than 15K now w/o tax consequences??

[2retireearly]

If you 'give' to him, directly a big sum of money, there are taxes to be paid. So whatever you do, ask a financial expert how to do it best.