How can I help my 24 year old daughter and her fiancé buy a home with cash, if I have a enough in a taxable brokerage account to pay cash for a home?

Do you think it's a big advantage to be a cash buyer, and if so, could I just loan her the money to buy a home and once she owns it, she gets a mortgage and pays back the loan I gave her?

She and her fiancé have enough savings to pay a 30% down payment on a home and are both very responsible financially and otherwise. What do you think? Thanks.

I think you would be stupid to give your daughter and her soon to be husband a free ride, cash to buy a home. Instead you need to teach them about saving, building up a reserve, paying bills on time, having no carry over balances on their credit cards.

When a child of mine wanted to buy a home with their spouse, with permission I ran their credit. While their scores were good enough to get a loan, they were living off of credit. They were worth a negative amount.

So I let them move into one of my rentals and instead of paying me rent, they had to use the rent money to pay off their credit. Then in around a year, I would lend them the down payment, but would secure it as a second mortgage.

well a year later, of not paying me rent, their credit balances went up and not down. They did not learn how to live within their means.

So I kecked them out of my rental and then they had no choice but to save and pay down debt.

I lent them the down payment and secured it by a second trust deed. When they got divorced, the in-law wanted half of the equity. But since the second had to be paid off during the sale, I got my down payment back. And my x-son-in-law got $100,000 less in proceeds...

We helped our kids with larger down payments to avoid PMI, but not a full cash buy on a house. Interest rates were so low they were better off borrowing from a bank than from me, and they did.

One kid and wife bought a duplex, lived in part of it, rented out part of it, saved enough to buy another house, rented out the whole duplex for a while and sold it when the market was high. Then they invested with us in another rental that we manage for them.

To your question if a cash deal is that important, we need more information.

If they are going to buy a house that is fixed up, probably from a non-investor that is simply moving then I do not believe cash will net them a better deal. The average homeowner is simply looking to pay off their mortgage and then take whatever cash is left to move to their new place, they don't usually care about quick closes.

On the other hand, if they are looking for a deal. That is, a place that needs fixing up, maybe a desperate seller, or a wholesaler, then yes cash will net a better deal. The only warning her is that many banks won't make a loan on such a place until it is fixed up. The bank loan appraisal may keep her from fulfilling her "get a loan" requirement.

You can loan them the money but you must collect interest at the going rate or it is taxable to you anyway. I'm carrying notes for my son and my CPA advised that it had to be at least prime interest rates to be considered an "arms length" transaction per tax code.

They have to pay interest anyway, so just buy it and they make payments to you. Since more than half of marriages end in divorce be careful how you set it up if you want to protect her.

Some sound advice in this thread.

Something to consider, too, IF they want to buy a place that is such a 'handyma'am special' that it doesn't qualify for a mortgage, are they going to have the time, know-how, or stamina to live in such a fixer whilst they get it done?

To the seller of a home, I doubt it makes much difference if there is cash in the bank, or a pre-approved mortgage to pay for the house, as long as they get paid. Moving the timeline of closing up probably isn't worth enough to the seller that there would be a heavy discount accepted. The houses that don't qualify for mortgages might be bigger projects that a young couple in child-rearing years might want as primary residence. As investment property, or even just a second home on a lake, sure, as they can go home at the end of working on rehabbing such a house. But, living in such a house ( that does NOT qualify for mortgage) during rehab is a big strain.

Thanks for the input, Ken!

Robert, my daughter has already been taught savings, and has a net worth higher than a median 40-year-old. I was just thinking, if I could help her do a cash purchase on a home, with a loan to her, how would I do it. I certainly did not plan to buy the home for her, nor would she want that. Thank you for sharing your own experience!

WMH, I was just thinking being an all-cash buyer, might be a significant advantage buying a home, hence my loan idea. Sounds like your kids are doing well and you have a good relationship with them. Nice of you to help them avoid PMI. Interesting that you invested with them on another rental. Pretty cool!

Thanks MikeA. That’s good stuff, that gets into the detail of making the loan, like charging interest and getting a mortgage on a renovated home. I appreciate it! I like the idea of testing the waters, to see if the seller would be motivated by cash. Interesting that Ken took a 125k cash offer over a 130k mortgage over. I’d imagine the no inspection was a big motivator too.

I think that giving your child a house has potential to improve their financial picture enormously. But, the potential won’t be realized if they often move for job related advancements. They need to be rooted in the community in which you buy. Also, they need to have big cash reserves to maintain their house without need of loans.

Right at the moment, around here, cash does help because with the higher mortgage rates, fewer buyers can qualify for the payments it takes to buy a nicer house. That makes for less competition and houses are sitting on the market longer.

We are all so spoiled around here that panic sets in if the house hasn't sold within two weeks.. A lowish offer, all cash, starts to look pretty good when buyers are thin on the ground and the cash buyer doesn't have to qualify for a mortgage.

You are talking about getting the cash price discount and then after the title has transferred, getting a mortgage financed on the house, when time isn't a problem.

That’s a thought Richard. A nice steady income stream in retirement :-) I’d be curious the tax ramifications of that. I think if I sold off my brokerage account now, to give my daughter a loan, there’d be no capital gains, as I have a net loss at this point. And I guess repayment of the loan is not treated as income. Hmmm..interesting.

Busy, I do like fixer uppers, but I don’t think they’d be happy with dad around all the time, and they don’t have the know-how themselves, but they may have the stamina. And it’s hard to find tradespeople these days, but I think I have a few loyal folks to help me with the work.

Just read your second post Ken and interesting what you wrote about buyers getting out of a deal if the appraisal comes in low and telling people they’ll pay the price, but try to make it up in inspections.

Sisco, you’re right and I do worry about that. I’ve always thought it’s difficult to help a person, without causing them to be less self-sufficient. However, for example, every time I think of buying something like a new pan, my daughter will sort through the pans we already have and show me I don’t need to buy anything. And that’s the way she is with her own money. She’s a major proponent of compound interest and preaches that cars and the home you live in are not investments. That’s how she is, and her fiancé is not far from that. So..I don’t worry too much about screwing them up, but I do think about it. Sorry for the long boast :-) Oh, and I’m just preparing for the future, once they are married. They are not buying a house right now.

Oregon Woodsmoke, what you wrote is pretty much what I’m thinking about a cash price discount. And now I’m thinking…could this be a win-win, if they pay the loan back to me at say 6%, while we’re retired?

Marie, you got me thinking with what you said. Thank you. Making it happen all on their own is something to feel good about and maybe getting help takes some of that away. As for gifting, tell me if I’m wrong, but I think you can gift your child say $100k in a year and not pay taxes, if you don’t exceed the lifetime exemption, which is in the millions.

Most buyers don't know about conforming deeds, dual title insurance, trade inspections or disclosures from sellers.

When I purchased my 4th home at 19, the termite company, the title company and the brokers all lied in the disclosure statements about having no knowledge of termites. The sellers all ready had 2 or 3 buyers that the deal fell thru. So when I went to buy this house, I got the termite company to issue a 1 year guarantee against termite eradication and repairing damaged wood members.

Trying to get the termite company, their bonding insurance company, the agents, etc to fix a $10K problem -- Since I got a Loan from a FDIC insured savings bank, and I told the Bank that I would walk away on the loan leaving it in default and with known damages, the FDIC would take a hit -- unless the bank put pressure on the Termite Company and all other.

Hoosier, I like that idea, and you’ve opened my mind to other options like the one you described. I guess I was thinking basically, I have this pile of money and could it help my daughter be in a better position buying a house without making things worse in the long run? It seems giving them some money and loaning them some is a nice option for them to be a cash buyer and get a better rate than from a bank and for us, as an additional cash stream in retirement.

Wow Robert, you purchased your 4th home when you were only 19? That’s amazing! I was thinking of purchasing a $400 ford falcon, when I was 19. Thanks for sharing your experience.

What happened Jim?

It depends. Only you (not us) know how fiscally responsible they are.

If you want to be the bank for them, I strongly suggest you have a lawyer draw up a regular note & deed of trust, or mortgage - whatever it is in your state. And hire a third party to manage the loan - to collect payments, and if needed send them late notices, etc.

FWIW, here's my story.

I have an adult child with high-functioning Autism. She had already been working 2 jobs for a years. Low-paying, but the best she can do - and she likes them. She wanted more independence, as everyone does, but could never afford a mortgage payment on even a small house purchased the "normal" way.

I had her paying me rent already, and she proved her ability to pay.

We found a 2/1 house near me in foreclosure, that was in TERRIBLE condition. It could only be purchased with cash.

I increased her rent to about what she would need to pay for the mortgage, then bought this house with cash. For the next year, she spent nearly every dollar she earned on repairs. We did a LOT ourselves.

Then we went to our credit union and she got a loan big enough to pay me back the purchase cost & small enough that she can easily make the payments on her income. They gave her consideration for the rent she had been paying me (of course it really went into her house : ). She had plenty of equity, no PMI, and hasn't has a late payment in just over 3 years now.

So, sometimes it can work out well. You have to really know your child.

I did have the deed in my name all the time she was putting her money into repairs, so if things went south it could have been sold or rented out.

I just had a conversation with son #2 about this. He's eager to buy a house as an inflation hedge, and asked whether he might get a better deal as a "cash" buyer (our cash, not his) and then applying for a mortgage.

I haven't sold many houses (we're buy-and-hold types), but our experience with the most recent sale would definitely push me toward taking a 5-10% lower price for an all-cash sale.

DJ, that does seem like a common thread here, that is, it depends on what your kid is like. Your daughter showed responsibility and it seems you ratcheted up her level of responsibility and she held up her end of the bargain. That’s great. Sounds like you came up with a creative arrangement that worked for your situation. You got me thinking, I too should be creative and not just stick with the first idea in my head. Thanks!!

Robin, that makes good sense. Good relationships are too valuable to risk.

Thanks Vee. I’m guessing it worked out well for you. Sounds like you got your tractor and she got her home :-)

Let them grow up and pay their own way.

You are allowed to give a $16,000 annual gift to individuals. A married couple would qualify for $32,000 in 2022 and $32,000 more in 2023.

You’d have to look through IRS form 709 to see what impact it may have on YOU (the gifter is/may be impacted by an excess gift, not the person gifted to)

smartasset.com/estate-planning/gift-tax-explained-2021-exemption-and-rates

One specific example has to do with the lifetime gifting limit, currently at about $12M per person….any amount over $16k would be subtracted from your lifetime limit. But the $12M amount will expire in 2025 and revert to $5.6M per person…still quite high. But what happens if future tax laws are changed and take it even lower? If you exceed the lifetime limit, YOU will have to pay taxes on the excess amounts. This lifetime limit also applies to the death tax.

I know for most of us we will never reach $5.6M…but I wanted to at least make you aware.

But as Ray said, this is all “per person”, so if you are married and your daughter is married, you and your wife could each gift $16k to EACH of the married couple, for a total of $64k this year. And next year it rises to $17k…so it would be $68k if they are married.

I think staying below or at the $16k for this year simplifies things and since it’s near year end you could do a second round early next year if you want…so I’d shoot for that if you can reach your goals that way.

I should also point out that some types of gifting are completely excluded. Things like medical bills and education. You would have to seek the advice of a tax accountant to be sure your gifts qualified but here is an article that may help some.

Sisco and I are on the same wave length. I realize the popular thing to do today is move in together, maybe have kids, buy a house, and THEN get married.... but time and again this works out to be a disaster.

The law has rules for what happens when married people split up as far as who gets what and how assets and debts are divided up. Non-married people are treated like a business partnership.

Get 'em hitched first. Let them commit their lives to each other before committing to a debt together.

Thanks Hoosier, for taking the time to explain all about the gift tax. Good to know my wife and I can gift 64k without any paperwork. But to give perspective on the cost of houses here, I’m looking at some chart that shows the “value of a typical single-family home” in NJ is 421k, vs PA is 240k and IN is 191k.

Plenty, I kinda get it, but not sure what is meant by “can’t live it for them”. I guess, like you said later in your post, you can be there to provide experience and wisdom, though you can’t live their life. I’ll bet the homes your mom gave you all were a nice connection to her. My father gave us a car in 2008, before he passed, and we still drive it today, and it gives good memories. Thanks for taking the time to write.

Thanks myob. I was really thinking giving them a mortgage would be good for both of us and as other’s mentioned, I would have well thought-out agreement to sign.

Interesting discussion!

My random thoughts:

Do not loan money to kids. That will change your relationship with your kids. Gifting is the only option.

To keep the accounting simple, keep the gift under the $16k annual limit.

If you are extremely rich, set up a trust and fund it for the kid. The kid can “borrow” money from the trust to buy the house and then make payments back to the trust. If the kid sticks to that plan, you could make additional payments to the trust. The trust could be just in your kid’s name - protecting it from divorce.

Ask that the gift be used to pay down the mortgage.

Don’t gift the engaged partner. But, do gift a spouse.

If you want to gift more, your wife can also give $16k on top of your gift.

My socialist side will now come out and say do for all your kids what you do for this kid.

As a side note, a distant relative’s kid married into a family that has “old money”. A trust fund is set up for each kid in the blood line. A trust is set up and funded as soon as each kid is born. These seem to be very large trust funds. With parental approval, the kid can use the trust to buy a house and or upgrade their existing house. The family lives in a very expensive part of the country. That approach seems to work for this family. This has been going on for several generations.

Another side note is Dave Ramsey bought each of his three kids a house, as well as creating high paying jobs for them and their spouses. The kids don’t seem to be very successful. The gift of a house and a job have not harmed the kids.

Let us know what you decide to do.

Bill,

Use this as a teaching opportunity so when the kid eventually inherits your estate, they will already be trained and can continue to grow your wealth for future generations.

This is the same challenge we are all going to have to deal with.

You have worked hard to build this wealth. Now it is time to work just as hard on creating a generational legacy.

Easier said than done!

It sounds like WMH is already working on transferring their wealth to the next generation and creating the concept of a family legacy.

Interesting input MMIT. Thanks for reminding me about fairness for all my children (2). Your mention of Dave Ramsey is interesting. Did you mean his kids got hurt by his help? I was just watching a you tube of him answering the question “Should I help my kids buy a home?”. He says don't put them in a situation that hurts them, like if they can’t afford the payments, or the cost to maintain a home, but otherwise he’s ok with it. He said it’s hard to control the tendency to tell them what to do, and if you give them something, that is not a license to control their life. Interesting, Dave said prior to 1970 it was highly unusual for couples married less than 5 years to buy a home. It’s only recently that there’s a pressure for couples to buy a home asap after marriage.

Re your second post, my daughter is very frugal, a major saver, who loves the power of compound interest and believes cars and the home you live in are not investment. I think she’s far along and training herself now in these areas. Some of my personal motivations, between me and you, are for her to make lots of grand children and live close enough that I can be part of their lives, God willing.

very interesting. even giving a mortgage-- not gonna happen.

Look, once the kids aren't KIDS anymore, their friends or boy and girlfriends influence them more than the parents. Maybe when they get to late 30's the light comes on and they say -- yea know maybe mom and dad had it right-- maybe!

I got a good chuckle about keeping the grandkids close. Well, another great plan in YOUR mind. WHY? did you hang out with your grand parents when you were younger? Our grand kids range from 22 16 14 and 8 and all they ever talk about is the time we've all spent together. They never wanted to be with their friends it was always spending time with us old folks-- you all are dreaming.

Can someone tell me why we need to live close to our kids and grand kids??? Maybe it's part of your retirement health care coverage plan?

MYOB, that's kind of sad, that you think adult children and grandchildren don't want to spend time with their parents or grandparents because they might like to. Mine do - they come for every holiday. They visit every summer for weeks at a time (hah, we live at the beach, so there was a method to our madness in buying here! We wanted to live somewhere THEY wanted to visit.)

I am one who has helped each and every one of my children so I don't have an aversion to providing assistance when you are able.

I didn't read all the responses but I would not lend a nickel if the property was going into his name too. Even a newly married couple, nope. Once they are married, then figure it out with a STRONG antenuptial agreement that the money you provide is hers and he has no claim to it.

WMH please don't be sad.

I want my kids and grandkids to made it for themselves. I don't want my granddaughter missing time with her friends and learning life's lessons. I feel I've had my time and now it's there's to make.

I will say I do wish and think often how I should have done more for my mother and my in laws and it is daunting sometimes to think on it. Once I was over 50. It was realized too late. Maybe others feel the same way?

Bill,

First, I agree about the grandkids!

If I knew how great grandkids were, I would have been nicer to their parents! (A Dave Ramsey saying)

I think the Ramsey kids were trained at an early age in good money management and have benefited from the experiences of their parents.

The Ramsey kids used the house Dave paid for to help create and build their own wealth at a faster rate than if the had to pay on a mortgage.

As a newly wed couple with a house Dave paid for, the kids could focus on wealth building instead of making house payments for 30 years.

If your daughter is good with money, give her some money, but, don’t bet the farm on her. Especially since they are not married.

myob, we’re all different, with some having great relationships with their parents and grandparents and others not. I think it’s good to live near family, because my relationship with them is the most important thing in my life. But that’s just me. I know others want to live far away from family members, and who am I to judge? I don’t know what their life is like. But I’ll tell you, I never regreted living close to my father, especially after my mom died. I cherish the time my dad and I had together, every week, sometimes every day before he passed. I couldn’t have done it, if I lived in a different state.

And I agree, we should not be buying a house for a 6-year-old child. But my daughter is 24. I should have used another word instead of “child” in the title of this post.

WMH, you made me chuckle telling the method to your madness! I’m thinking similarly. Yeah, it’s true you can talk on the phone, and that works ok for adults, but I think kids really need face time to relate.

Thanks for that input, Nicole. I will bear it in mind!

Well thank you MMIT for your uplifting words! That’s a funny saying about being nicer to their parents! And to be clear, there was no intent, to help them out before marriage, that’s for sure :-)

if they have 30% down and good credit they don't need you. rates are up a tad now but those of us in the trenches for more than 5 years remember 12-18% notes! a 6% note rate with 20% down is very good historically and lower than Bidenflation! take some other lenders money and keep yours handy for the deals i think we will see in the coming 2-3 years. they can refi as the opportunity arises. certainly you can make a gift to encourage their step into wealth building through RE and gifts/help for down payments are as common as a sunrise. my ma and pa did it and pops also financed certain of my purchases. i was HAPPY to grease him with interest and he was HAPPY to have that income which exceeded the deposit rates nicely at the time.

i have great hopes that my spawn will build on the respectable estate i'll leave so their kids can do the same. i won't be scrimping to do that but the pile will be nice just the same.

Thanks Mike. The gist of my question was how big an advantage it is to be a “cash buyer”, and could I give my daughter a short-term loan to make the “cash buyer” purchase.

Sounds like your father made you a loan for something and it worked out well for both of you. I was thinking instead of my daughter going to the bank for a loan, what if I made it to her instead?

That is great you are so thankful to your parents for what they’ve done for you! Not all sons and daughters are.

Bill, when we looked for a retirement place, we first looked for water just because that's what we wanted. We then looked for someplace that was a relatively easy driving distance from the kids and had amenities THEY would want to visit.

So we see them often and the oldest grandkids (in their late teens - early 20's) have grown up knowing us very well, and the baby (he's not 3 yet) sees us at least once a month, for days at a time, so he knows us too. Also, video chats reinforce that.

We welcome their friends, too, MYOB. In fact one of my oldest granddaughter's friends is living with us right now. And the best friends of one son have spent weeks at a time with us in the summer (we live at the beach...)

Yes, it's chaotic sometimes but hey, we live really quietly much of the rest of the time, so wouldn't complain about it.

WMH, reading your post this morning put a big smile on my face and gave me some laughs. Thanks.

Sounds like you gave some good thought to your retirement place, and it’s worked out well. I’ll bet there’s plenty of times when you think “nothing better than this”.

Funny, you put in caps “THEY”. I think I get it and it’s a good reminder to me, if the time comes to find a new place for my wife and me.

And great idea on the video chats. I’m a little sheepish on that, but I can see it adds a lot to the typical phone call.

Thanks for revealing the big secret :-) I’d imagine, from knowing you here, you’re easy to get along with, a good listener, generous, and that’s a big part of why they come.

Thank you Bill, nice things to say.

Yes for the retirement home it's one thing to make it all that you (and your wife) would want, as my parents did for themselves. But we both thought about those visits to our parents (and our own grandparents) and it was always kind of a slog when you were a kid...we wanted to have a place the kids would want to come independent of US, then they'd have to come visit us as a by-product ;)

One set of my grandparents lived in the middle of nowhere NH. The other set lived on Cape Cod and you could walk to both the ocean and the bay. Guess where we preferred to go as kids? (Houses were both ordinary, kids don't care about that.)

Also, one grandmother's place was full of doo-dahs and knick-knacks "don't touch." The other had a hammock in the backyard, wooden blocks (made by Grampa, left over from woodworking projects) so you could build anything, and other more kid-friendly things to do. We would only visit for a random Sunday dinner with the NH set, and a week at a time with the Cape Cod set.

That funny WMH, visit as a by-product. But those are very helpful thoughts if the time comes for that move.

A friend of mine got a beautiful house on the finger lakes in NY. But who wants to drive 3-1/2 hours for the weekend? She ended up selling it not long after she got it and is now looking for a place on the NJ shore.

Cool idea on buying house for self and leaving it at death, giving the higher stepped-up basis. Thanks.

I had been looking at houses my oldest wanted for a long time. Always something in the way. She has great credit but little money in the bank. Finishing a new degree for her job is the main culprit.

Well I got tired of looking at all these places that were either glossed over trash or out of her realm for a comfortable mortgage.

So the last house she looked at was meh, but closer to me and her job. Talked with the wife and we used money from a cash out refi and bought the place.

Problem is I have been working on it pretty much solo. Kid does what she can, but full time job with extras after work and then the school work makes it tough. She has a BF going on 3 years now. They have rented two places from me.

Once I get the place back to a livable standard the plan is for her to get the loan and pay me back the money I have invested. Loan will be in her name only. He's a good kid, but he isn't mine.