Can I Borrow Money from My Children To Buy a House?

By
Mortgage and Lending with First Heritage Mortgage NMLS #: 938761

My three-year-old daughter has a coin purse her Pop gave to her complete with $2.50.  She calls this money her “tickets.”  One time I was driving on the expressway and my E-Zpass was not in my car as my husband had borrowed it.  I needed 75 cents and I had no cash.  It took some major convincing, but I was able to trade a promise for a future treat to borrow 75 cents tickets from my daughter.  And, yes, I have since paid her back. Believe it or not, I’m in good company as this Time article reports between 30%-50% of parents borrow money from their kids–but most do not return it.

Borrowing Money from Your Children To Buy a House

Unfortunately, lenders are a little more particular about source of funds than the Virginia Department of Transportation.  Borrowers are not allowed to use funds from custodial accounts established for children or other individuals. Once the funds have been deposited into a custodial account, they are not legally permitted to be taken back; the funds now belong to the ‘child’ or ‘other’ person.  However, a custodial account set up for a borrower who was a minor at the time the account was established is eligible for closing costs or reserves once the borrower reaches the legal age and has unrestricted access to the funds.

Where Can You Get Down Payment Funds (if not from your child’s piggy bank)?

  • Your checking or savings account
  • 401k
  • Stocks and bonds
  • IRAs
  • Trust accounts
  • Income tax refund
  • Proceeds from the sale of a property
  • Sale of personal property
  • Inheritance
  • Cash value of life insurance policy
  • Gifts from a relative, close friend, employer, labor union, charitable organization or a government agencypublic entity who provides home ownership assistance

Seasoning Your Funds

Something important to remember is your mortgage lender will only need your most recent two months of bank statements before closing. Any funds that are deposited into your account before these statements will not be investigated as the loan officer and underwriter will not see them–and, we cannot ask you to source deposits we don’t know about.

So, if you have cash under your mattress you would like to use (this happens more often than you would think) or you want to get around the documentation required for gift funds, sale of personal property, etc., my advice is to get the funds into your account 2-3 months before you need to show bank statements to the underwriter.  These funds have been “seasoned” and will not need to be sourced.  You will save yourself a lot of paperwork.

This topic is another reason why meeting with a loan officer 6-12 months out from buying a house is helpful.  We can give you tips on preparing your finances so that the underwriting process goes much more smoothly.  Most homebuyers have no idea what funds can be used for a down payment and what funds are off limits.

If you have a question about down payments or mortgages in general, don’t hesitate to email or call me at 804.386.9364.

Comments (49)

Richard Arnold
Keller Williams Realty East Valley - Tempe, AZ
Realtor - Tempe, Chandler, Mesa, Gilbert, Phoenix

In this scenario, "borrow" seems more like "raid" as the underage child can't participate in the purchase contract.

 

Nov 18, 2014 12:12 AM
Hella M. Rothwell, Broker/Realtor®
Carmel by the Sea, CA
Rothwell Realty Inc. CA#01968433 Carmel-by-the-Sea

As your daughter gets older, maybe tell her about interest on cash borrowed. Since this was a "hard money loan", maybe 10%+ would be indicated. :-}

Nov 18, 2014 02:16 AM
Marla Yost
Marla Yost Team- Keller Williams Realty - Arlington, TX
The Marla Yost Team

Great story ...love the story about your daughter.

Nov 18, 2014 02:32 AM
Carla Muss-Jacobs, RETIRED
RETIRED / State License is Inactive - Portland, OR

Never heard, or had, a parent borrowing from their children.  I know adult children get gifts from the Bank of Ma & Pa all the time.  Interesting.  You daughter sounds adorable, btw.  "Tickets" . . . too cute!  Did you pay her back with ticket interest?

Nov 18, 2014 03:30 AM
Rebecca Gaujot, Realtor®
Lewisburg, WV
Lewisburg WV, the go to agent for all real estate

Hi Whitney, excellent post. And agree, Most homebuyers have no idea what funds can be used for a down payment and what funds are off limits.

Nov 18, 2014 04:53 AM
Tom Bailey
Margaret Rudd & Associates Inc. - Oak Island, NC

Whitney, Thanks for a great very informative post. I am not sure when my kids were young if I could have gotten a loan.

Nov 18, 2014 06:19 AM
Barbara Altieri
Kinard Realty Group Fairfield and New Haven County CT Real Estate - Shelton, CT
REALTOR-Fairfield County CT Homes/Condos For Sale

Whitney -- You're so right that most people do not know which funds can be used for a down payment and which cannot.  Great informative post.

Nov 18, 2014 06:19 AM
Barbara-Jo Roberts Berberi, MA, PSA, TRC - Greater Clearwater Florida Residential Real Estate Professional
Charles Rutenberg Realty - Clearwater, FL
Palm Harbor, Dunedin, Clearwater, Safety Harbor

This post provides the public with valuable information, Whitney! Great job.

Nov 18, 2014 06:28 AM
Larry Johnston
Broker, Friends & Neighbors Real Estate and Elkhart County Subdivisions, LLC - Elkhart, IN
Broker,Friends & Neighbors Real Estate, Elkhart,IN

Hi Whitney,  Congratulaions on your Feature.  Great information that  many people are not aware of when buying a home.

Nov 18, 2014 09:10 AM
Matt Brady
Finance Of America - Del Mar, CA
One of San Diego's Best Lenders

Seasoning makes everything go smoother, especially if funds are from a foreign source.

Nov 18, 2014 09:10 AM
Inna Ivchenko
Barcode Properties - Encino, CA
Realtor® • Green • GRI • HAFA • PSC Calabasas CA

We usually hear about kids borrowing money from parents, but it can be the opposite. 2-3 months wait is not that long:)

Great information!

Nov 18, 2014 04:35 PM
Evelyn Kennedy
Alain Pinel Realtors - Alameda, CA
Alameda, Real Estate, Alameda, CA

Whitney:

Love your post.  Too bad the piggy bank is off limits.  Your advice about putting cash in an account for 2-3 months before you are ready to purchase a home is excellent. 

Nov 19, 2014 11:42 AM
Shannon Milligan, Richmond VA Real Estate Agent/Associate Broker
RVA Home Team - Richmond, VA
RVA Home Team - Winning with Integrity.

This is great advice, Whitney! I had a relative who used to hide money in the curtains, under the bed, in the stove, etc! She was a depression era baby and she hoarded it!

Nice of you to give back the money. I have to admit I have taken from my kids and not returned. Bad mommy!

Nov 20, 2014 02:39 AM
Robert Bob Gilbert
Berkshire Hathaway HomeServices Anderson Properties - Katy, TX
Your Katy TX ( West of Houston) Real Estate Expert

Whitney, Thanks for the tip about 2 months of bank staements as you never know when that might come in handy. 

Nov 20, 2014 05:29 AM
Robert Vegas Bob Swetz
Las Vegas, NV

Hello Whitney ... Vegas Bob would love to "Feature" your post to one of his groups, but once again the ActiveRain Network is (Broken).

And if you notice, you posted to 5 different groups and one of them shows up on at the bottom of you post. I guess only "The Gods" have the power to Feature so congrats to you, wonderful post

Nov 21, 2014 09:25 AM
Joan Cox
House to Home, Inc. - Denver Real Estate - 720-231-6373 - Denver, CO
Denver Real Estate - Selling One Home at a Time

Whitney, what a great post to make parents aware of how the gift funds work for a home purchase!  

Nov 22, 2014 09:31 PM
Sharon Tara
Sharon Tara Transformations - Portsmouth, NH
New Hampshire Home Stager

It's the opposite here...the kids are borrowing from us!  It's only happened a couple times and we were paid back. I can't imagine borrowing from my kids, nevermind NOT paying them back if I did!

Nov 25, 2014 07:23 AM
Jerry Newman
Brown Realty, 210-789-4216,www.JeremiahNewman.com - San Antonio, TX
Texas REALTOR, San Antonio Military Relocation

This Great Information, Whitney. I have buyers that always ask these type of questions. Happy Thanksgiving!

Nov 26, 2014 04:07 AM
Lisa Von Domek
Lisa Von Domek Team - Dallas, TX
....Experience Isn't Expensive.... It's Priceless!

Hello Whitney,

Seasoning the funds is the hard part for some!

Dec 02, 2014 09:49 AM
Robert Vegas Bob Swetz
Las Vegas, NV

Vegas Bob has featured your post to the group:

SUCCESS AT ACTIVERAIN

Dec 23, 2014 07:22 AM

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