How much did you borrow when you bought your house?

thunderstorm

Tue, Mar 20 2018, 9:11 pm

Squishy wrote:

It is a fraudulent transaction if you provide a gift letter for a loan. There are no taxes on the small amounts "gifted " here. If the were gift taxes, they belong to the donor not the recipient.

So why does the lender/ bank require a gift letter when a person discloses to them that they received this gift? The bank wouldn't be requesting something fraudulent.

amother

Pearl

Tue, Mar 20 2018, 9:18 pm

Gift taxes in 2017 had a 14k exemption per person, meaning that a couple can give another couple 56k before gift taxes kick in. The donors pay taxes on anything above that. Banks want to see that the money is a gift rather than a loan in part to see that the home buyers aren't taking on so much debt that they won't be able to pay the mortgage.

33055

Tue, Mar 20 2018, 9:20 pm

amother wrote:

Yes, as long as everything is disclosed up front to the bank, it's up to the bank to approve.

And as you said, if it's a true gift, then the person making the gift needs to file gift tax returns (but then of course can't demand repayment of a loan).

The banks want to see that the borrower has a personal vested interest in taking the loan seriously and making their monthly payments so they don't lose the house. The fact that you put your own money toward the down payment is what assures them of that.

These transactions aren't disclosing the truth to the bank. They are fraudulent plain and simple. A loan disguised as a gift is criminal.

thunderstorm

Tue, Mar 20 2018, 9:23 pm

Squishy wrote:

These transactions aren't disclosing the truth to the bank. They are fraudulent plain and simple. A loan disguised as a gift is criminal.

Ok. I misunderstood. If it's a true gift then there is no issue. The issue is when a person says it's a gift and it's really borrowed money that they need to pay back.

33055

Tue, Mar 20 2018, 9:31 pm

amother wrote:

It is a lot higher than that. You are not understanding the topic. But you are amother anyway, so what is the difference?

33055

Tue, Mar 20 2018, 9:40 pm

thunderstorm wrote:

So why does the lender/ bank require a gift letter when a person discloses to them that they received this gift? The bank wouldn't be requesting something fraudulent.

It's called CYA. Banks are not stupid.

Clients would buy houses for September and be in bankruptcy court in February 20 years ago. The game then was illegal second mortgages which were recorded after the bank recorded theirs

amother

Goldenrod

Tue, Mar 20 2018, 10:08 pm

Squishy wrote:

It is a lot higher than that. You are not understanding the topic. But you are amother anyway, so what is the difference?

https://www.irs.gov/businesses.....taxes

How many annual exclusions are available?
The annual exclusion applies to gifts to each donee. In other words, if you give each of your children $11,000 in 2002-2005, $12,000 in 2006-2008, $13,000 in 2009-2012 and $14,000 on or after January 1, 2013, the annual exclusion applies to each gift. The annual exclusion for 2014, 2015, 2016 and 2017 is $14,000. For 2018, the annual exclusion is $15,000.

???

amother

Pearl

Tue, Mar 20 2018, 10:25 pm

Squishy wrote:

It is a lot higher than that. You are not understanding the topic. But you are amother anyway, so what is the difference?

Even amothers are happy to learn new things
What did I misunderstand?

33055

Tue, Mar 20 2018, 10:29 pm

amother wrote:

https://www.irs.gov/businesses/small-businesses-self-employed/frequently-asked-questions-on-gift-taxes

How many annual exclusions are available?
The annual exclusion applies to gifts to each donee. In other words, if you give each of your children $11,000 in 2002-2005, $12,000 in 2006-2008, $13,000 in 2009-2012 and $14,000 on or after January 1, 2013, the annual exclusion applies to each gift. The annual exclusion for 2014, 2015, 2016 and 2017 is $14,000. For 2018, the annual exclusion is $15,000.

???

You don't understand a complex topic. Repeating one facet you read on Google is not giving you understanding. Besides, what difference does how much the annual exclusion was in the past help? You are in over your head.

amother

Goldenrod

Tue, Mar 20 2018, 11:08 pm

amother wrote:

Even amothers are happy to learn new things
What did I misunderstand?

Since Squishy hasn't come back to explain it...

I will.

A $14,000 gift does not need to be reported to the IRS.

A a gift of more than that, generally does.

However - paying tax on the gift is only 'triggered' after a life time exemption of $5M+ (higher post tax reform) is surpased.

On the topic at hand, however.

The bank has an interest in how much 'real' equity you have in your house, and how much your overall debt load is.

Once they have all the information - then based on their polices (and other regulations) they decide if they will extend for you a mortgage.

In my case - my lender wanted to see that I had put down as my downpayment money from my account, (that had been growing over the years).

(and I'm not in over my head).

amother

Tan

Tue, Mar 20 2018, 11:10 pm

amother wrote:

Even amothers are happy to learn new things
What did I misunderstand?

So, let's say the bank wants to know where your 20% for the down payment came from, and if you say it's a loan, then the bank won't approve you for a mortgage.

So you say it's a gift. The bank wants proof that it's a gift. So you get your parents to write letters saying that it's a gift.

But the truth is, your mom is actually loaning you $12,00 and she's loaning your dh $12,000. Your dad is doing the same. So are your dh's parents. Altogether, you and dh now have $96,000 in cash.

You have a side agreement or understanding of some sort with your parents that you and dh are expected to repay this money. But your parents tell the bank it was a gift to help you qualify for the mortgage.

If the bank wants sure proof that this was really a gift and not a loan, asking for tax returns wouldn't necessarily help. Because, as each gift was below the annual exclusion amount, none of them were required to file gift tax returns.

Iow, it's not that the bank needs to see gift tax returns. It's that the gift tax returns are evidence that the bank uses, to satisfy itself that you actually took a gift and not a loan.

But if the money was actually a loan, that is fraud. Regardless of whether gift tax returns were filed.

amother

Pearl

Wed, Mar 21 2018, 1:14 am

amother wrote:

Thanks, very helpful. So an amount over 14k has to be reported, but isn't taxed. That wasn't too complicated.

And I seem to have understood the underlying issue, that a bank will want to see how much you have borrowed in total, not just how much you are borrowing from them.

amother

Indigo

Wed, Mar 21 2018, 9:43 am

goldenrod this is probably a tangent- but no one has to pay gift tax if it's less then 5 M? I have a relative who gives out "gifts"- she always makes sure to stay under the lower number cap, if she goes over 14,000 she does it with her husband so she can give more. You are saying that's unnecessary?

amother

Goldenrod

Wed, Mar 21 2018, 9:58 am

amother wrote:

She should talk to her CPA. But basically, she can give out 14K with out reporting it.

If she gives out more, its reportable and effectively reduces her lifelong exemption amount of 5M+ This is a simplification...

amother

Goldenrod

Wed, Mar 21 2018, 10:01 am

amother wrote:

to be technical about it - its taxed and then there is a credit against it that wipes out the tax. Smile

amother

Tan

Wed, Mar 21 2018, 10:05 am

amother wrote:

Every person gets a lifetime exclusion of $5.5 million dollars. If the total amount of gifts they give falls below this amount, then the gifter doesn't pay a tax.

Once the total amount of gifts you give during your life reaches $5.5 million, further gifts that you give, above $5.5 million, are taxed at a rate of close to 50%.

Caveat. Every year, you can give amounts below that year's annual exclusion amount to as many different people as you want, and *those* gifts are not included toward your lifetime $5.5 million exclusion.

potatoes

Wed, Mar 21 2018, 10:46 am

amother wrote:

For us it was very simple. We could easily afford to pay back 1000$/month for 5 years on our 60k loan. It would have taken us at least 2 years to save up the same 60k (We put down 60k from our savings too). In two years, the cost of our home went up 200k. It made financial sense to buy when we did and borrow responsibly in order to do so.

This. Same here. Borrowed 100k for the downpayment, we had about 60k of our own. We have a plan to pay it back within 5 yrs. , so far, we are bh ahead of schedule.
In the last few months since we baught, the house already went up 30k.

If you have a realistic tangible plan for pay back, it's a smart bussiness decision.

Yes we could have waited to save more ourselves, but the real estate is rising so quickly everywhere...

BH we are lucky we had who to borrow from

amother

Indigo

Wed, Mar 21 2018, 12:22 pm

so 5.5 million is total doesn't matter if you give it to 50 different people? and as long as you stay under the 14,000 it doesn't count towards it at at all. Interesting. I guess she want to leave the option of giving that amount to her children if she wants Wink

Interesting....

amother

Goldenrod

Wed, Mar 21 2018, 12:35 pm

amother wrote:

Interesting....

with tax reform its currently way more than 5.5M... but will go back down eventually.

but yes - she could give 50 people 14K (15K in 2018) per year and it won't count towards the lifetime exemption from the gift tax (or generation skipping tax).

This does get complicated... again - I'm sure she's working with a tax advisor.

33055

Wed, Mar 21 2018, 1:02 pm

amother wrote:

It is $5.6 million this year. It is much more complicated than you are saying. She should see a Tax Attorney who practices in this area.