Should I take out a loan vs pay off with mother's help?

Asked by David1321, 22031 Sun Jun 5, 2011

I'm considering buying a house for 200k.
When buying place ($200k), I will be paying 120k as down-payment, and financing the rest. I am thinking of my mother pay an additional 80k (to buy the place for cash).

Should I do this or not? I will still be a little liquid, but no where near as much. She will still be liquid as well. I am not married / not kids.

What are the pros/cons of this? If she adds 80k, will that count as a gift, and will I have to pay taxes on that? How do I avoid double-paying taxes on that? Makes no sense that it would be taxed again.

If double-taxation can't be avoided, what's the maximum she can give to avoid it? Also, I'm considering signing a personal loan with my mother to pay her back with 0% interest to avoid the taxation issue. Is this an option?

I don't want her name on title because she never bought a home and if she wants to buy a place, I don't want her loans to be at higher interest later on.


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Vivianne Rut…, , Fairfax County, VA
Sun Jun 5, 2011

This is NOT a real estate question - real estate agents can only answer real estate questions, unless they are also licenced as a lawyer or CPA.
You need to pose tax questions a tax accountant (CPA) and the title questions to a real estate lawyer.

I might be wrong, but I believe that 2011 annual exclusion for tax-free gifts remains $13,000 per donor. A giver may make an unlimited number of $13,000 gifts, as long as they are to different individuals.

In other words, your Mother can give you $13,000 tax free.
Of course, as Mother she CAN finance the entire purchase for you as long as she pays cash.
If you choose to use a lender to finance your purchase, your Mother would have to sign a GIFT LETTER that she does NOT expect the money to be paid back - lenders want the gift to be a TRUE gift, otherwise the additional loan (to your Mother) would change your debt-to-income ratio.

As for the Title, it is strictly between you and your Mother. One can finance the purchase and NOT be on the Title AND one can be on the Title without financing the purchase.

You and your Mother should have a Legal document written by an experienced real estate lawyer that clearly spells out your rights and obligations to protect both of you. I know, it is your Mother and you are her son, but human relationships do tend to go sour occassionally, especially if you change your status from single to married.

Again, you need to contact tax accountant and real estate lawyer for advice.
0 votes
Gerard Carney, Agent, Spring Hill, FL
Mon Jun 6, 2011
Talk to your accountant, but also talk to your mother. what will her interest be in the place. Will you be paying her back or will she be living in the home with you or a combination of both. Buying the home outright is the best way to go, I would never tell you take out a car loan if you had and were willing to buy that item outright! I'm sure all the mortgage brokers on here would advise differently, but if you can buy a home with no loan you save a great seal of money now on fees and up front interest and you save a great deal over the life of the ownership of the home! Good Luck and Enjoy your new home!
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Melissa Bark…, Agent, Washington, DC
Mon Jun 6, 2011
As the others have answered, I would talk to your accountant or CPA to see what tax implications a gift would have on you and your mother.

With interest rates as low as they are right now, why put down such a large down payment and leave yourself a little liquid? I would consultant a lender to see what kind of rate and downpayment they would recommend.

Good lucK!
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Ruth and Per…, Agent, Los Gatos, CA
Sun Jun 5, 2011
Hi David

It is great to hear that you are looking to buy a house.
It may be prudent to put say 25-30% down and get yourself a nice
Low rate loan at 3 to 4 percent.

Sure you can get your mom to loan you the money, that is done all
The time. If it is documented as a loan properly, there will not be any taxes.

Good luck.
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Don Tepper, Agent, Burke, VA
Sun Jun 5, 2011
As the others say, there's a lot of tax and financial planning analysis that has to be done here.

I'm not even sure it's a good idea for you to put $120,000 down on a $200,000 property. That's tieing up a huge amount of cash in an illiquid asset. You say "I will still be a little liquid."

It depends on your finances as well as your risk tolerance, but a financial advisor might suggest you be more than "a little liquid."

Also, ask the tax advisor about that "0%" interest. I know that in some cases the IRS will use "imputed interest." So even if some document says "0%," the IRS will assign a more realistic number to it.

Hope that helps.
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Sonal Goda, Agent, Chantilly, VA
Sun Jun 5, 2011
Hi David,

This is a complicated question and there are certainly pros and cons for doing it either way. If you need a referral to a real estate attorney for your title questions or a CPA for your tax questions, let me know.

Regarding any competitive offer situations that you may run into, it does help to have a cash offer - you will most likely decrease the number of properties that you have to bid on before being successful by not having a loan.

Also, as far as your mom qualifying for a first-time home buyer program - most of the programs I have run across consider a person to be a first-time home buyer if they haven't owned a home for three years. Also, I'm not sure that the first-time home buyer programs that are available would be of use to your mom? Most of them are aimed at allowing zero or lower downpayments. And sometimes, there are grant programs which have income caps. I would research what is available for first-time home buyers before worrying too much about what your mom may be missing out on. A loan officer can help you with this.

Good luck,
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Sandra J Ste…, Agent, Cottonwood, AZ
Sun Jun 5, 2011
I highly recommend that you contact you CPA or Accountant. We do not give legal or financial advise.
Sandra J Steele
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brent mendel…, Mortgage Broker Or Lender, Bethesda, MD
Sun Jun 5, 2011
The biggest downside for your Mother to be involved with the home purchase is she could lose certain tax breaks and certain programs that are only available to first time home buyers. As everyone else said get a good CPA/tax attorney to give you legal guideance and the best way to move forward. Hope this helps and if you need the name of a good CPA just let me know.
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Carlos Carab…, Agent, McLean, VA
Sun Jun 5, 2011
Hello David;

This is a question for your tax advisory, as my colleges already mentioned here the annual exclusion for tax-free gifts remains $13,000 per donor, you have to weigh your options here, in the other hands interest rate remaing really low and you still have the benefict of interest tax deduction.


Carlos Caraballo
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Glen Baird, Agent, Fairfax, VA
Sun Jun 5, 2011
You have many options and should meet with a good CPA/Tax Attorney. Your mom could finance the purchase and could forgive a portion of the loan each year until the balance reaches zero. A Trust agreement is another option.
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David Burnham, , Washington, DC
Sun Jun 5, 2011
I would either take out a loan for the $80k or add your mother's name to the title. I don't think having her on your title will impact her future ability to ge t a loan, since the house will be owned outright, but you will need to check with a lender for this.

A tax professional may be able to offer an alternate solution, but I think anything where her name is not on the title will be considered a taxable gift.
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Vivianne Rut…, , Fairfax County, VA
Sun Jun 5, 2011
Laura, to the best of my knowledge, the limit for tax-free gifts for 2011 is $13,000 per gifter. The gifter can give tax-free gifts to as many qualified persons as he/she choses (=unlimited) - this is why real estate agents cannot give tax and legal advice :-) :-) :-)

Here is a blog about title isues that you might find helpful:…

NOTE: For tax and legal advice always contact experts in those fields.
0 votes
Laura Ibanez, Agent, Fairfax, VA
Sun Jun 5, 2011
The gift from any family member, is capped at $12,000 per parent, if you are applying for a loan. You should consult an accountant to find out what the tax consequences are, if your mother gives an additional $72,000 towards the home purchase.

"A gift letter will include the name of donor, the name of the recipient, the relationship between the two parties, the amount of the gift, the address of the property for which the gift is to be used to pay for, the fact that no repayment is required or expected, and an assurance that the person making the gift or the source of funds is not in any way party or beneficiary to the transaction, e.g. not the broker, seller, agent, loan officer, builder and so on. In most cases the person giving the gift will be required to document where the money came from, such as a bank account or a brokerage account."
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David1321, Home Buyer, 22031
Sun Jun 5, 2011
Glenn, no terms; she wants to gift it. If necessary she can put her name on the title as well. I'd rather not do that in case she wants to take out a loan in the future I'd want her to be eligible for first-time-buyer loan rates.
0 votes
Glenn Stromb…, , Prince William County, VA
Sun Jun 5, 2011
Thats dependes, what are Mom's terms?
0 votes
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