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Can I gift the down payment for a home to my girlfriend and then have her add me to title?
Anonymous5 views4 answers
My girlfriend and I would like to buy a home together. I own a business which has lost money over the past two years, which disqualifies me from being on the mortgage. She doesn't have the money for the downpayment by herself. The mortgage broker is suggesting that I gift her the downpayment, she buys the home, and then she adds me to the title.
Are there risks or legal/tax consequences to structuring the transaction in this manner?
Janet Spiro MartinFranchise LawyerMission Viejo, CA ·
This is one way, and you really need to establish this partnership obligation in another document that clearly spells out the rights and obligations of each party and what will happen if one party decides to leave the relationship, and/or if one of you wants to sell and the other doesn't.....the source of a giant number of issues exists when 2 parties are on title and there is a major disagreement, the property will sit in limbo since both parties have to sign to do anything. At least having a partnership type of agreement spells this out at the beginning. Having you on title but not on the mortgage puts her at a giant disadvantage all the way around, even if you agree to contribute half, or more. She needs to understand this. Her giving you a deed of trust (lien on the property), for the amount you are supposedly gifting her, protects your down payment as a secured loan, even if you are not on title.
There are always legal and tax consequences of every transaction; too broad a subject for this forum. You two should sit down with an attorney or CPA or both to make sure you both understand all the ramifications.
There are risks she won't add you to title and will claim your gift was a real gift. You willl both be using your annual or lifetime gift tax exclusions. The due on sale clause may cause the bank to call the loan if they notice your name is added to title. If fraudulent financial data is provided by either of you to the bank, then down the road it would prevent a discharge in bankruptcy. What if one of you can't make 1/2 the payments on a go-forward basis.
If this were a law school exam one could spot issues until it's time to move to the next question. won't be able to customize analysis you can rely on.
Michael Doland is spot on. Quite frankly, the mortgage broker shouldn't be advising this, as an agent for the underwriting institution (i.e.: Lender), and / or as an advisor to you. (Which I know they now are considered.) In short, there are both legal and tax consequences, as already mentioned. A thorough review of the note will help w/ the specifics, but I've seen loans accelerated without a prior change in title approved by the lender. Good luck.
Michael Raymond DaymudeLitigation LawyerSherman Oaks, CA ·
Sure, you certainly can do this. Should you? NO! Do what you need to do to get your credit in order and in a year or two, or a little longer, if you are still together buy a home then, when both of you can be on title and on the loan. If you do as the loan broker suggests, I see a potentially costly legal mess for you down the road. Good luck.
