First time buyer penalty for buying parent home

banker0679 · Posted: Mon Jan 07, 2008 1:28 pm Post subject:

Lee there are some options that can be discussed.......however you need to speak with a good broker.....there is no need to look at a FHA 203k loan......it's not needed given your scenario........a Gift of equity is a much easier transaction......
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Cedric Kalvesmaki

I'm not sure how a gift of equity will give the buyer money to repair the home.
Gift of equity normally helps for LTV issues or closing costs.

FHA 203K is for a rehab in which it will help out the buyer pay for repair costs. I have never heard of a Gift of Equity giving you money to repair the home.

ckalvesmaki · Posted: Mon Jan 07, 2008 2:15 pm Post subject:

The net amount of the sale price can be given as a gift as well........SO......if the parents sell the house for 245k and gift the OP The difference between 245k and 150k the OP would have a loan for 150k......They could then legally give the OP after close the difference between 150k and the amoount they want to get from the house......IT could not be done at closing.......it would have to be done after closing......but it is a legal transaction.......and you don't have to mess with the FHA loan........it would be no different that giving the money up front.....an adtional option would be to have the parents open a heloc at no cost do the repairs and then sell the house.......so there are options other than FHA.....

banker0679 · Posted: Mon Jan 07, 2008 3:09 pm Post subject:

The net amount of the sale price can be given as a gift as well........SO......if the parents sell the house for 245k and gift the OP The difference between 245k and 150k the OP would have a loan for 150k......They could then legally give the OP after close the difference between 150k and the amoount they want to get from the house......IT could not be done at closing.......it would have to be done after closing......but it is a legal transaction.......and you don't have to mess with the FHA loan........it would be no different that giving the money up front.....an adtional option would be to have the parents open a heloc at no cost do the repairs and then sell the house.......so there are options other than FHA.....
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Cedric Kalvesmaki

and yet you will need to pay around 20-30% on taxes on the amount you're not allowed to receive.
48k they're allowed to receive as a gift.....anything over that will be subject to taxes.
Receiving money 'outside of closing' w/out a lender knowing about it is illegal. I would highly discourage someone from doing this EVEN if it's their parents offering it.

FHA 203K will have a much lower rate than a HELOC.....and they can avoid the taxes on the amount above the gifted amount....but still decent points to consider.

ckalvesmaki · Posted: Mon Jan 07, 2008 7:37 pm Post subject:

Banker.......I'm not going to argue with you.......You are talking about taxes.......neither one of is is a CPA........We don't kow if they have lived in the house for 2 of the past 5 years......so THE WHOLE AMOUNT OF THE GIFT MAY BE TAXABLE ALONG WITH CAP GAINS TAX........so stop the knit picking and recognize that there are other options........neither one of us knows the the EXACT scenario........my comment reflects other options that are available........as for your fraud comment.......Let me address that......How the money is given is the most important component......they can do it on the front side and actually depending on circumstances see some benefit........or they can choose to give money back to the OP a year after the fact.........and there is NOTHING illegal about giving a cash gift.......

banker0679 · Posted: Mon Jan 07, 2008 7:45 pm Post subject:

Please read carefully as I stated 'Giving cash from the sale of a home to a buyer without letting the lender know IS ILLEGAL. Please call your state commissioner of banks and ask them.

Please refrain from giving unethical advice on this forum that can lead to fraud. Everyone in the mortgage industry will tell you this is illegal. Telling a borrower to negotiate an outside transaction that isn't disclosed on the HUD violates Federal Laws. Carpet allowances, repair costs, cash gifts, etc...that IS NOT disclosed to the lender is illegal.

banker0679 · Posted: Mon Jan 07, 2008 7:56 pm Post subject:

Receiving cash gifts has nothing to do with the law that Bill Clinton passed concerning capital gains on a home that has been lived in for 2yrs out of the 5yrs. We're speaking of the 'borrower' paying these taxes as THEY are the one RECEIVING the gift.

A person is allowed to receive 12,000 from an individual w/out paying taxes on it. Since he has mother/father he can receive 24,000. If he is married he can receive up to 48,000. Anything over this amount is subject to taxes. Since they're willing to sell it for around 75k.....and gift him the 20%. That will make sales price around 94,000.
That is a gift of 19,000.
If they sell it to him for the 'full value' and gift it to him aftewards that will be 245k - 75k = 170k
170k - 48k = 122k in excess gifted amount.

Excess gifts are subject to taxes of at least 20%.
24,400 in taxes.
You're right....I'm not a CPA, but I'm sure one phone call to a CPA will tell you that 24,400 is a lower than the actual number.

I know this from dealing with these transactions, and receiving a 20% equity from parents which I had to pay taxes on.

ckalvesmaki · Posted: Mon Jan 07, 2008 9:22 pm Post subject:

My point still stands........There are other options available to the OP......primarily taking a no cost heloc out doing the repair or upgrades and the buying the house......Th OP avoids the up front MIP and 4 years of mortgage insurance on an FHA loan......or the cost of the refi to get out of mortgage insurance......

Caron · Posted: Tue Jan 08, 2008 12:15 am Post subject: RE: gift of equity fraud?

Hi all,

As much as I can say, at the time of closing, the seller is often asked to sign a statement that there is no side deal between the buyer and the seller and no gift or payment is made by the buyer till the buyer is to receive the funds from the lender.

After the buyer receives the funds, he will be able to receive the gift of equity as cash from his parents as far as this situation is concerned. And, if the buyer receives the gift once the closing is over, the transaction will not be regarded as a fraud. That's the reason Ckalvesmaki says that the parents could legally give the OP the gift of equity after closing is over.

Good luck Smile

lisascherzer · Joined: 04 Jan 2008 Posts: 755 1.03 Dollars($)

Hi Lee,

With a gift of equity there can be capital gains tax if your parents have not lived in the home 2 out of the last 5 years. If they have, I would suggest going with a gift of equity and then you can borrow what you need to fix up the home without having to go FHA. If your parents have not lived in the home, then I would suggest them adding you to title and then you can just do a refinance for what you need to fix up the home as well. This way there is no capital gains tax.

gmakerley · Posted: Mon Jan 14, 2008 11:39 am Post subject:

what ever happened to "erring on the side of caution"????

thank you banker, for your sanity in this situation. i concur that advising a borrower to take advantage of opportunities that are not disclosed to his lender is dangerous, to say the least; and bordering on outright fraudulence.

is nobody careful any more with the things they will suggest?

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