What is the smartest thing to do when usin a life insurance policy and inheritance $ as a home down payment?
I want advice on 2 financial issues:
#1.I just found out that my grandfather (who recently passed away) bought a variable life insurance policy on me many years ago. I have completed the process to have it transferred to my ownership. I want to cash it out and use it as money down when I buy my first home this year (and buy term life).
#2. Sometime before the end of this year, I will also be inheriting some money from my grandfather. I would also like to use this money as a downpayment on my first home purchase at the end of this year.
I want to know the way I can pay the least amount of taxes in utilitizing this money in using it as a down payment. So, what should I do with the variable life insurance policy and the inheritance? What is the smartest thing to do?
The answers have been very helpful so far - I appreciate it for sure. But no one has answered my question about the life insurance policy…do I not have to pay taxes on that either? And, where should I store the money from both the LI and the inheritance prior to putting it down on the home?
Melissa
December 29th, 2008 at 1:43 PM
Jimmy
Inheritances are free from federal tax for the recipient - any estate taxes are paid out of the estate prior to distribution. You’ll have to check if any state taxes apply.
I don’t understand the rest of your question. You state that you are going to cash out the L.I. and use all the cash you inherit for a home purchase, then ask what you should do with the inheritance. Sounds like you’ve already decided.
January 1st, 2009 at 6:05 PM
Dennis
to me smartest thing to do is go to local bank and sit down with them and talk the options then go to mortgage company with same talk and compare the 2-reason being you are going to buy house no one better to know the rules with taxes then the pros-they wont charge you for consultation thinking they have chance of making loan
January 1st, 2009 at 8:38 PM
Joy
Sounds like you have a good plan. Estate (Federal) and inheritance (State) taxes are paid by the estate before distribution, so don’t worry about that.
The size of your down payment on a house will effect the interest rate that you can get, whether you have to pay for mortgage insurance, and whether you have to let the bank maintain escrow for your insurance and/or taxes.
Once you have a down payment of 20% or more, you are unlikely to improve any of these factors. So, if you have more than that available, you might want to consider setting aside an emergency fund with some of your money. You also might want to set aside money for any improvements you will want to make in the next few years
The interest rate that you get with 20% down will probably be the lowest you will be able to get on any loan for a long time, so you definately want to avoid a situation where you have to borrow money later because you put too much down on the first mortgage.
Also, if you are considering putting more than 20% down on the house so you can afford the monthly payments, you probably should be looking for a smaller house because of the higher costs of owning a larger house.