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My girlfriend is in the process of buying a home. We're not married, common-law or otherwise.

I was planning to help her pay for the closing costs and down payment, with my contribution being about $3-5k, because we will be living there together and plan to get married in 1-2 years (in the meantime I'll be renting from her w/ rental agreement etc.). However, after reading How should my brother and I structure our real estate purchase?, which seems to be somewhat related to my question, I am now concerned that by helping her pay the closing costs and down payment we would somehow be committing fraud. From the cited question:

He offered to pay the down-payment ... so that means he will only need to put down (as a ‘gift’) roughly $7000.

And from the accepted answer (emphasis mine):

Calling something a 'gift' when really it's a payment for part ownership of 'your' house is fraud.

On the other hand, another question seems to indicate that a "gift" of this nature is perfectly acceptable: How to avoid having my father's down payment assistance get taxed as a gift

So my questions are:

Can I pay for a portion of the down payment & closing costs without it being considered fraud? When does my money stop being a "gift" and start being fraud? Are we off the hook because I won't have part ownership of the home (see above emphasis)?

Also related: How can I legally and efficiently help my girlfriend build equity by helping with a mortgage?

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    Give her the money 2 weeks before, let her cash it in her account, and then, she'll pay the fee alone. – Carlos2W Oct 27 '16 at 21:45
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    What's the relevance of the two weeks? If it's fraud to do this I don't see why two weeks would make a difference. – Ben.12 Oct 27 '16 at 21:51
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    @Carlos2W When you buy a house, you have to demonstrate where the down payment comes from, typically by showing bank statements going back several months. So when you're pulling together funds for a down payment, do it at least a month before the earliest month the bank wants to see. Then the bank sees the balance in one account for the full term and you can say that you saved the money until you had enough, and that you waited to start shopping for a house until you had the money together. When you do not declare gifts as such, it's probably fraud, but I'm not in law enforcement, and IANAL. – Xalorous Oct 27 '16 at 21:57
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    You can structure it as prepaid rent. That would be neither a gift nor a loan. Rent also strongly implies you're not the owner. – MSalters Oct 28 '16 at 7:21
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    @Xalorous These are very dangerous suggestions. You should never put yourself in a position where you are purposefully manipulating data to present to e.g. a bank. Whatever you do, don't lie to the bank. You are turning a potentially awkward conversation with the bank ('yes, my boyfriend gave me a gift of 5k for the down payment') into a worse conversation with law enforcement ('yes, I lied to the bank about the true source of these funds'). – Grade 'Eh' Bacon Oct 28 '16 at 13:19

10 Answers 10

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With the standard "I am not a lawyer" disclaimer, consider this question:

If you and your girlfriend split up sometime after purchasing the house but before getting married, would you expect her to repay you for the closing costs and downpayment? That is, if you write her a check for $5k, and 6 months after she signs the papers for the house one of you decides to break up with the other, would you expect her to write you a check for $5k in return?

That is the difference between "a gift" and "a loan disguised as a gift". If the answer is no, you don't expect it back, then everything is fine and you're in the clear - it's perfectly legal to give someone money. If the answer is yes, you would want to be "paid back", then it's not a gift and you run the risk of running afoul of the regulations.

With respect to a previous answer about "gifting money that is not taxed", in the US one person can give another up to $14,000 without worrying about gift taxes, and even in the event that you exceed that amount, the excess would simply eat into the lifetime exemption of $5,250,000. (Individual states may have different rules and exempt amounts that would apply to state taxes.)

Please also consider the income issue for your "rental agreement". Your GF would be expected to declare that amount and pay income tax on it as a business. She might also declare part of that amount as expected income for purposes of securing the loan, but that may run into its own issues (you're not a roommate, and presumably the home is not a duplex or set up as apartments, and presumably she would not offer a similar deal to someone other than you).

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    I would also imagine that if it was legally signed off as a gift then trying to go after someone for the money would lean in the giftee's favor. I know a couple that got married and bought a house shortly after with the wedding money. They applied for an FHA and due to the surge of money in their bank account, they had to contact all of their guests and have them sign a form stating that the money they gave for the wedding was truly a gift. – MonkeyZeus Oct 28 '16 at 12:38
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When you purchase a mortgage, you have to prove the source of your down payment. Primarily this is so that the mortgage lender knows that there are no other outstanding liens against the property. If you show that some or part of your down payment was a gift, there is no fraud, but it may affect your qualification for the mortgage.

Consult a lawyer in your area to determine if there is a legal way to gift the money that is not taxed. If all else fails you could just pay the tax. Also, you should research whether your gift is above the floor of taxable gifts.

  • Gifts are not taxed. They may eat into the estate tax exemption. But nobody has to write a check when you file a gift tax form. – stannius Oct 28 '16 at 16:11
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    @stannius gifts can be taxed in the US if they are big enough irs.gov/businesses/small-businesses-self-employed/… $7000 is too little to be taxed though – DavePhD Oct 28 '16 at 16:38
  • Apparently you can choose whether or not to pay tax on the gift or eat into your lifetime exclusion. The gift would have to be over $5.25 million to force the gifter to pay tax on it; and over $14,000 to even be potentially taxable. – stannius Oct 28 '16 at 18:17
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    I'll be happy to pay taxes on that. Anyone wanna gift me $5.26 million? ;) – Wayne Werner Oct 28 '16 at 19:27
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    The gifter would be required to pay the taxes unless the giftee voluntarily agreed to pay them. Sounds like you're willing though :) – stannius Oct 30 '16 at 17:47
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you have 2 concerns: the lender and the irs. either way you should be fine

the lender just wants to know that you have no legal claim to the property or other compensation. simply signing a gift declaration should clear that up, making this a "gift" from their perspective. they probably have some standard form you can sign. otherwise, just a simple note that says "i, so-and-so, gave whats-er-name x$ on the y of june, 20## as a gift, with no expectation of repayment". then, only way you could get charged with "fraud" is if you seek compensation for this "gift" in the future. even then, the bank would probably have to find out about the compensation and complain pretty strongly to get a prosecutor interested in a small dollar misrepresentation case with little or no provable intent. a bigger concern is the bank being uncomfortable with the future renter also giving a gift. that just "smells weird". and bankers hate anything weird. it probably won't prevent the mortgage from getting approved, but it might delay the underwriters a few days while the wring their hands about it.

the irs is a bit more complicated. they tend to be the "heads we win, tails you lose" types. assuming they consider this a gift, then you are fine, since it is under the annual gift exclusion (~14k$ these days); you don't even have to tell them about it. however, if she gives you a large financial gift in the near future, they may decide to interpret those two events as a single transaction turning this into a no interest loan. even then, you should be fine since the irs generally doesn't care about loans under 100k$ with "missing" interest under 1k$/yr. since this is a small loan and interest rates are so low, you have no worries.

further irs reading on gift loans: https://www.law.cornell.edu/uscode/text/26/7872

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It's a gift if there are no strings attached.

If you are rationalizing it to try to make it a gift for tax or any other purpose when there really is a connection between the transactions, or when you expect any kind of value or benefit in return for it, then it's not a gift... don't make it one and don't call it one. That would indeed likely be fraud.

Play be the rules and sleep easy, is how I like to live.

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Sheesh, are people kidding here? It's a gift. It's not fraud. Just keep in mind that, because it's a gift, you cannot get it "back" if you break up--you are giving it to her. If you happen to get married at some point in the future, you will then own part of the apartment, but that is a completely separate matter.

Give her the money, don't expect it back. Ever.

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The issue here is that the transaction (your funds to her account) looks very similar to the rent payments which you plan to make in the future. Those rental payments (if deemed to be commercial) would normally be subject to tax. Consider the scenario where rather than an up front $5000, and $5000 over 2 years, you paid her $10000, and paid no rent. That might be an attempt to avoid paying tax.

A commercial transaction can't be re-labeled as a gift just based on your election - the transaction needs to be considered as a whole.

However, an interest free, unsecured loan connected with you paying rent at market rate would be (depending on local laws) simply foolish (to some extent).

I don't think you are able to structure the transaction as a joint purchase (since the mortgage will prevent her from allocating a part of the property to you).

Its also likely that you can live in her house and contribute an adequate amount to the household costs without creating a taxable income for her. For example in the UK, up to ~£4000 pa rental income generated from the property in which you reside does not need to be declared.

You need to identify the scenarios where your particular arrangement could be imagined as resulting in a taxable or potentially taxable event - then make sure you are not avoiding those events just by choosing how you label the events.

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Regarding the mortgage company, they will want to know where the down payment came from, and as long as you are honest about it, there is no fraud.

It's possible that the mortgage company may have some reservations about the deal now that they know where the down payment came from, but that will depend on the size of the deal and other factors. If everyone involved has decent credit, and this is a fairly standard mortgage, it will probably have no impact at all.

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Omg, the answer is easy. Tell the TRUTH, and nothing is fraud. Down payment gifts are SOP's, and every lender works with that. EACH lender has their own rules. Fannie May and Freddie Mac could care less, and FHA and VA backed loans allow for full gifting unless the buyer's credit is below the standard 620, then 3.5% must come from the buyer. Standard bank loans want to know the source of the down payment for ONE REASON ONLY: to know if the buyer is taking ON A NEW DEBT! The only thing you will need do is sign a legal document stating the entire down payment is a gift. That way the bank knows their lendee isn't owing a new substantial debt, and that there aren't two lenders on the house, because should she default, the bank will have to pay you back first off the resale. Get it? They just want to know how many hands are in the fire.

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    I've edited this to remove bits that aren't relevant to the question. The rest doesn't really add much to the other answers. – Ganesh Sittampalam Oct 30 '16 at 15:02
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There is not any fraud involved. Anybody can gift money to another person.

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    I've edited this to remove bits that aren't relevant to the question. The rest doesn't really add much to the other answers. – Ganesh Sittampalam Oct 30 '16 at 15:02
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There are several areas of passive fraud by being unclear on what you are doing.

When a citizen buys a house, the mortgage lender wants all the details as to how the buyer rounded up the money. That is so they can use their own formulas to assess the buyer's creditworthiness and the probability that the buyer will be able to keep up on payments, taxes and maintenance; or have they overextended themselves. The fraud is in the withholding of that info. By way of tricking them into making a favorable decision, when they might not have if they'd had all the facts.


Then there's making this sound all lovey-dovey, good intentions, no strings attached, no expectations. You're lying to yourself. What you've actually done is put money between yourselves, because you have not laid down FAIR rules to cover every possibility. You're not willing to plan for failure because you don't want to admit failure is possible, which is vain. Once you leap into this bell jar, the uncertainty of "what happens if..." will intrude itself into everyone's thoughts, slowly corroding your relationship. It's a recipe for disaster.

That uncertainty puts her in a very uncomfortable position. She has to labor to make sure the issue doesn't explode, so she's tiptoeing around you to avoid fights. Every fight, she'll wonder if you'll play the breakup card and threaten to demand the money back. The money will literally come between you. This is what money does. Thinking otherwise is a young person's mistake of inexperience. Don't take my word on it, contact Suze Orman and see what she says.

Your lender is also not going to like those poorly defined lovers' promises, because they've seen it all before, and don't want to yet again foreclose on a house that fighting lovers trashed. (it's like, superhero battles are awesome unless you own the building they trashed.)

This thing can still be done, but to remove this fraud of wishful thinking, you need to scrupulously plan for every possibility, agree to outcomes that are fair and achievable, put it in writing and share it with a neutral third party. You haven't done it, because it seems like it would be awkward as hell - and it will be! - Or it will test your relationship by forcing direct honesty about a bunch of things you haven't talked about or are afraid to - and it will! - And to be blunt, your relationship may not be able to survive that much honesty. But if it does, you'll be in much better shape.


The other passive fraud is taxes. By not defining the characteristics of the payment, you fog up the question of how your contribution will be taxed (if it will be taxed). A proper contract with each other will settle that. (there's an argument to be made for involving a tax advisor in the design of that contract, so that you can work things to your advantage.)

As an example, defining the payment as "rent" is about the worst you could do, as you will not be able to deduct any home expenses, she will need to pay income tax on the rent, but she can cannot take landlord's tax deductions on anything but the fraction of the house which is exclusively in your control; i.e. none.

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    Your first and third points have some merit (nothing that hasn't been stated before however). But your second point is completely ludicrous. You've made too many assumptions. – Ben.12 Oct 29 '16 at 4:27

protected by Ganesh Sittampalam Oct 30 '16 at 7:43

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