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I wouldn't dump it all into the house either. it really depends on his or her living costs as to how much he or she needs for emergency but on a 400k house...... Somewhere around 100-125k into the house is probably safe.
Parents can give 14k tax free to all children , children in law, or grand children per year I think.
14k is the limit without reporting it... if you're single. If you're married, the most the couple can give away is 28k.
Anything above that has to be reported on a form 709, and that amount will count towards the $5,250,000 lifetime exemption you get from the death tax. Both of those numbers are now indexed for inflation.
(Either way, odds are nobody's going to get double taxed for it...)
If interest rates spike quickly (not likely but not out of the question), maybe put the 100K into 10-20 year treasuries if their yields end up being higher than the current mortgage rate that you locked in.
Is your real question actually "Investing long-term vs. using it to prepay it all?" There's nothing wrong with weighing investing against putting the money down, but you really don't want your emergency fund tied up in long-term investments that might be illiquid or lose value when you need cash.
Personally, if I had no emergency savings I'd probably set aside the actual amount needed for an emergency fund (3-6 months of investments, not a random arbitrary number) and throw the rest at the down payment. Of course, if the gift is contingent upon him using for a down payment it's a moot point.
Of the emergency fund, assuming six months worth of expenses I'd put half in cash (money market or passbook savings account) and the other half in a 90-day CD so it might make a little more money until the time it's actually needed.
Last edited by duster1979; 03-27-2014 at 01:08 PM..
A friend of a friend wanted to buy a house.. he has no savings or emergency fund.
He wanted to buy a $400,000 house and his parents offered him $200,000. He spends all $200,000 on the down payments, and now he's back to no emergency fund and a $200,000 mortgage. And he has reasonably good credit.
(Now, some of us aren't fortunate enough to have family help chip in the cost of housing but that's not the main point of this post.)
If I were in his shoes, I probably would only take $100,000 for the downpayment and save the other $100,000 for an emergency fund. Do I sound crazy for proposing this instead? Sure, you'd have higher mortgage payments but interest rates are already pretty close to historical lows. Also, if he loses his job and can't pay mortgage payments, he'll be without a house and his parents $200,000 poorer, while if he had only put 100K down, he can draw on the remaining 100,000 to stay afloat while he looks for his next gig.
It seems nobody (at least in real life) understands my way of approaching this.. what do you think?
How do you know this? 30K would hardly get ANYONE through a year of unemployment....sorry, but there is no such thing as having too much liquid money in an emergency....
Depending on where you live ...
Depending on if you're single or married or have kids ...
Depending on what your monthly bills are ...
Lots of people live on 30K, and they're working.
Unemployment - I lived on 8600 (1400 a month) for 6 months, without touching my savings. And that included making my mortgage payment.
How do you know this? 30K would hardly get ANYONE through a year of unemployment....sorry, but there is no such thing as having too much liquid money in an emergency....
Well, you can't be sure (just like you can't be sure you won't be struck by lightning or a car tomorrow), but it shouldn't be that tough to go 6 months on $30,000 without an income (actually longer if you include unemployment benefits). And this assumes no change to lifestyle. I would assume a prudent homeowner would at least take in tenants/roommates and limit takeout food and driving until the next job comes along.
Well...how about taking the 200K and buying a 200K house? Shame on his parents for enabling his stupidity.
200K can't buy you a house proper (i.e. not condo or townhome) in liveable condition in some areas, notably downtowns of big cities (DC, SF, NYC, Boston).
A friend of a friend wanted to buy a house.. he has no savings or emergency fund.
He wanted to buy a $400,000 house and his parents offered him $200,000. He spends all $200,000 on the down payments, and now he's back to no emergency fund and a $200,000 mortgage. And he has reasonably good credit.
(Now, some of us aren't fortunate enough to have family help chip in the cost of housing but that's not the main point of this post.)
If I were in his shoes, I probably would only take $100,000 for the downpayment and save the other $100,000 for an emergency fund. Do I sound crazy for proposing this instead? Sure, you'd have higher mortgage payments but interest rates are already pretty close to historical lows. Also, if he loses his job and can't pay mortgage payments, he'll be without a house and his parents $200,000 poorer, while if he had only put 100K down, he can draw on the remaining 100,000 to stay afloat while he looks for his next gig.
It seems nobody (at least in real life) understands my way of approaching this.. what do you think?
Nope, put the $200,000 into the downpayment. Get insurance to deal with the loss of a job because of health issues or other situations.
There are lots of options for people who want to get some type of insurance to pay their monthly bills if something goes wrong.
If they lose their job or whatever, the $100,000 is spent, then what? Even if they get back on their feet, now they have a higher monthly payment to deal with making everything that much more difficult.
Why tie up all that cash as a quasi insurance fund when for a fraction of that buy the same and then when it isn't a big factor anymore, cancel it. It costs a little bit of money now but it doesn't go on forever and they aren't trying up 100 grand.
I would have told my parents thanks but no thanks.
That's their money to enjoy while they are alive and if they want to spend it making others happy, they can put it into a college fund for my kids.
No, you make a good suggestion. If he could have found a fixer-upper, or a great deal for that 200,000 or less that would have been an option.
Well if it was a fixer upper bought with cash leaving no savings, it would require borrowing money to fix it up, so there would still be a mortgage on it!
I would put 20-25% down to get the lower interest rate. Keep 6 months as an e-fund and then invested the rest of the money.
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