We just signed a contract to buy a house and still own the house we currently live in. It will work out that we are buying the second house before we sell our current house, which is not even on the market yet.
In order to buy the other house without selling ours first, my parents have agreed to "lend" us between $40 and $50K. We will then pay them back once our current house sells.
Our lender is fine with all this. Today, he emailed me something called a "gift letter" for my parents to fill out prior to writing us a check for the amount we're borrowing from them. The letter states that the gift is to be applied toward the purchase of the property and no repayment is expected or implied. The lender stressed that people do this all the time and that the lender does not report any of this to the IRS.
I am just concerned that my parents could be taxed on this money, and that we could then be taxed when we pay them back. What's the difference between this and something like the gift tax (where you can only give a certain amount per year tax-free)? Also, since my parents are elderly, would this affect the Medicaid lookback period?
Has anyone else gone this route for their mortgage?