Have you been asked by a relative to help them buy a home? Perhaps they don’t want you to be a co-borrower on the loan and be indebted to the lender but to help out with funds needed for a down payment and closing costs? There are a couple of things you need to be aware of.

 

After speaking with your financial planner and the gift won’t have much of a negligible impact on your financial portfolio and determining how much you wish to help out, be prepared to fill out what is called a Gift Affidavit. This form is signed by you showing where the funds are coming from and the lender determines the gift won’t have a detrimental effect on your finances. The funds should be wired to the relative with a copy of the wire transfer handy. If you send a check, the relative will need to have a copy of the canceled check, both sides, so it’s best to wire the funds directly into the relative’s account. An even better method is to get the wiring instructions to the settlement agent and wire the gift funds directly from your account to theirs.

One interesting note is how the IRS views this financial gift. If you’re single, you can give up to $14,000 per individual without incurring a gift tax and if you’re married filing jointly, you can give up to $28,000 tax-free. You can give more than these amounts it’s just the gift tax will kick in. The relatives who receive this gift do not pay the gift tax, you do. Your financial planner will help determine if your account won’t be negatively affected and you also need some tax advice from a tax professional as well.