Lender's calling partner's money a "Gift"

[Matt Vaughn]

So I need some help - I'm new to this.

I just put an offer on a deal in Maryland that I'm pursuing with a family member (my sister calls him Dad). The plan is to split ownership 50/50. He's providing $100k in cash and I'm planning to finance the remaining $100k through a conventional 30-year fixed mortgage. He said he didn't need his name on the deed - we planned to write up an operating agreement to clearly define our business agreement, but we didn't think it was necessary to add multiple people to the deed.

At the last hour, I'm hearing that my dad's $100k is going to be considered a "gift" and that a "gift letter" will likely be required. Does this sound right? Would this be viewed differently if he were on the deed?

We didn't consider this a gift - we considered this a 50/50 purchase, where he funded his half with cash and I'm funding mine with traditional financing.

The only reason I care about the "gift" terminology is if this adversely affects my dad from a tax perspective.

As it stands, I have an offer going in with my name only on the offer, and claiming a 50% downpayment that I intend to make with my father's funds (not sure if it's relevant, but I have plenty of cash and income to qualify for the whole loan independent of my dad's downpayment).

Does anyone have any insight or recommendations?

For all I know, there are a million better ways to structure this.

[Michael Seeker]

Originally posted by @Matt Vaughn:

@Dion DePaoli , the intent is for this property to be fixed and occupied by my wife and me. My father intends to invest 50% of the price in exchange for 50% equity in the property. I intend to secure a loan for the other 50%. There is no expectation that these funds would be paid back, except upon sale of the property, at which time he would have a 50% stake in the equity.

The bank does not want you to be under water the day you close on the loan, which will be the case. You'll owe your dad 100K and the bank 100K + closing costs and your position in the property will be $0 or less. This is why they require the $100K from your father to be a gift, meaning you don't have an obligation to repay that AND the loan you took out with them.