Can Your Generous Gift
Be Used to Buy a Home?

Question: I own my home, which was recently appraised at $1.3 million, of which I have $1 million in equity. My 36-year-old, single daughter would like to buy a home for the first time. She earns more than $100,000 annually and has no credit-card debt, but doesn't have $20,000 for a down payment. Can I take out a home-equity loan and give the money to her? She would make the payments. Would this be in our best interest? Is there another way for a first-time home buyer to get money for a down payment?

-- Mary, Pewaukee, Wis.

Mary: It is admirable that you want to help your daughter with her down payment. Yes, you should be able to easily take out a second mortgage on your property and give her the proceeds. Any bank or mortgage broker should be able to arrange it. Just keep in mind that you will be the one making the payments on the loan.

As far as the money is concerned, if you give it as a gift, $11,000 of the $20,000 should be excluded from taxes this year and the remainder can be applied to your lifetime gift-tax exclusion (unified credit). Consult with your accountant for more details.

On the other hand, there are plenty of mortgages out there for people with excellent credit and strong income, like your daughter seems to have. Some of these loans are from 90% of the appraised value of the home to as much as 103%! They are offered up to $322,700 through Fannie Mae and Freddie Mac, the two big secondary mortgage lenders. To find out more about how to get such a loan, check with a good mortgage broker.

-- Mr. Irwin has more than 25 years' experience as a Los Angeles-area real-estate broker. He is the author of more than two dozen books about real estate and is recognized as one of the most knowledgeable writers in the real-estate field. Mr. Irwin's most recent books are "How to Get Started in Real Estate Investing" and "How to Buy a Home When You Can't Afford It" (McGraw-Hill, 2002).

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