Dear Dr. Don,
I want to give my 18-year-old daughter a home that has a loan balance of $50,000. The home is worth about $110,000, which means there's about $60,000 in equity. She has a good job and could afford the house payment, but she has no credit at all. How can she get a home loan? It would be awesome for her to take advantage of the tax credit.
-- JW
Dear JW,
From your letter, I gather that you want to gift your daughter the home but want her to get a loan to replace the current mortgage on the property. If you're worried about her being able to qualify for a loan because she has no credit history, you could consider co-signing the loan with her on the home.
Co-signing the note may not put you in the financial position you were hoping for, but it will allow your daughter to build a credit history. Down the road, she can refinance and re-title the property to complete the gift and take you off the loan.
President Obama recently signed legislation to extend the first-time homebuyer tax credit, and even expand the pool of eligible homebuyers. However, there is some bad news for you. According to the Internal Revenue Service, selling a home to a family member makes the buyer ineligible for the first-time homebuyer tax credit.
The IRS publication "First-Time Homebuyer Credit Questions and Answers: Basic Information" lists eight scenarios that render a buyer ineligible for the credit, including the following: "You buy a home from a close relative. This includes your spouse, parent, grandparent, child or grandchild."
Even if your daughter can't capture the tax credit, discussing your situation with a real estate attorney and accountant could result in a creative solution that accomplishes much of what you want to achieve in gifting the equity in this home.
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