HELOC as Down Payment on Duplex

[Mike Matern]

I'm trying to purchase a duplex with my parents. They are considering getting a HELOC on their current home which is paid off in full. The duplex is for sale for $300k. Is it possible for me to get a conventional loan for $150k and use their HELOC for the "down payment" of $150k?

[Steven Hamilton II]

Either way it may be fine. What I recommend is that if possible they "lend" the funds to you. They can each gift 14k per year to you. Each year they can then lower the principal by gifting 14k each to you. This will spread it out and will avoid triggering the requirement of a gift tax return. Being the gift is over 14k a Form 709 Gift Tax Return must be filed. There will not be any liability unless they have already used their entire estate exemption of 5.34m each.

Please ask if you need a further explanation.

-Steven