Grandma and Grandpa May Hold the Key to the American Dream

Owning a home is a proven way to create wealth, but how do young people get started today when housing costs are sky high, the selection is low and it’s hard to finance the purchase?

As a parent or grandparent, you may hold the key.

The first step is to determine how much monthly payment your kid or grandkid can afford. They’ll need a minimum 620 credit score and should plan on no more than 50% of their take-home pay for the total housing payment. If these criteria are met, the next hurdle is coming up with the down payment that can range from 3.5% for certain FHA loans to 20% or more for the most affordable conventional mortgages.

This is where you can help. Current tax law permits anyone to give up to $16,000 (the current lifetime exemption is $12.06 million) per year to an individual without causing any gift or estate tax consequences. Let’s say you gift your child or grandchild $100,000. No taxes would be paid on that gift, nor would the child have to pay taxes. Rather, you would file a gift tax return showing that you gifted $100,000; $16,000 (or $32,000 for married couples filing jointly) would be excluded so that the taxable gifts applied against the lifetime exemption would be $84,000, or $68,000 for a married couple.

If you don’t have the cash available, or it is in your AMG investment portfolio, rather than liquidating a portion of your investments to raise the cash that could trigger a taxable event to you, you could borrow the amount needed against the value of your investment portfolio. This loan requires a monthly payment of only the interest—the principal can be repaid in any amount at any time that is acceptable to you. The interest rate is a variable rate tied to the prime rate.

If this method sounds appealing, contact your AMG financial advisor.

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