What are the Options of Giving a Gift of Cash for a Down Payment?

Brian in Palm Bay called Robert Palmer to ask about his daughter who is currently in a "joint" mortgage with a friend. The friend is going to be taking over the house and refinancing alone. He would like to know if this will negatively affect his daughter's credit score. He would also asks how he could proceed in gifting her cash for a down payment on a new house.

If the current mortgage Brian's daughter is in is up-to-date and payments were paid on time as agreed then getting out of the mortgage would not have a negative affect on her credit score and show as paid in full on her report. However, it is still possible her credit score could go down a few points, as people with a mortgage tend to have slightly higher credit scores than people without. As for the gift of cash for a down payment, this is a great idea. Depending on the amount that Brian wants to put down can dictate the type of loan his daughter would seek. If the loan is an FHA loan then as little as 3 1/2% can be gifted. If it is a conventional loan then it is required that a full 20% is gifted as the down payment. The type of loan chosen would be dependent on amount Brian would like to put down as well as making sure the loan meets all of his daughter's needs. If he does decide to puts 20% percent down and a conventional loan is used, ultimately this would mean a lower rate and lower payments for his daughter.