Have you been asked to help your son or daughter finance a home with a financial gift? It's not uncommon. Coming up with enough funds to close on a mortgage is typically the biggest hurdle when buying and financing a home. Or, maybe you haven't been asked and instead are voluntarily deciding to lend a financial hand. However the situation, you'll need to know a few things before moving forward.
The first is to decide how much to give. This is fairly straightforward but you'll need to decide how much and when to provide a gift. You can do it in advance or you can wait until the settlement and send the funds directly to the settlement agent at the closing table. Or, you can send the funds directly to the buyers. Your best bet is to send the funds directly to their bank account. The recipients will send you their banking information.
Lenders will also want to verify your financial ability to provide gift funds. Lenders will want to make sure the gift funds not only come from a qualified account but that you have the ability to provide the funds without creating any sort of a financial hardship on you. If you decide to provide a $10,000 financial gift, the account from which the funds are coming should have more than enough to cover the financial help.
It can't look like you'll be tapped out when helping out. If you provide $10,000 and your bank account shows $10,500, that could imply that you expect to be paid back, otherwise your own ability to pay your own bills would be impaired. You might also be asked to source those funds with statements from your donor account. If you're pulling money out of a savings account, you can expect to provide bank statements showing exactly where the money is coming from.
The most effective and efficient way is to wire the funds directly to the settlement agent rather than to the buyer's bank account. However you decide, the important thing to remember is to provide the lender with documentation that you have the funds readily available and you can make the financial gift without any financial hardship whatsoever.
Providing a financial gift to a family member is indeed a noble effort, just make sure you and the buyers provide a clear financial trail when transferring the funds.
