Friday, November 22, 2013

Mortgage 101: Using a gift for your down payment

For many first time home buyers, saving up enough money for the down payment can be one of the hardest challenges to overcome.  However, for those that are lucky, a gift from family or relatives may be the key to purchasing your dream home.  According to the National Association of Realtors, about 25 percent of first time home buyers use a large cash gift to help fund their down payment.  


When it comes to down payments, certain loan programs are more strict are about whether the money can be gifted or must be the borrower's own funds.  However, other loan program don't have any stipulations at all so make sure to speak with your loan officer about your particular program and what the guidelines are.  

With that said, using a down payment gift isn't impossible and is in fact a common practice by many.  There are just a few steps you'll want to take in order to make it happen.

Start by asking family members.  Gifts from your friends, neighbor, or co-workers will not be accepted.  However, gifts from your parents, siblings, grandparents, aunts or uncles are usually okay.  Again, check with your lender and loan officer before receiving any gifts.  

Prepare a gift letter.  The donor of the gift will need to write out a detailed letter that explains the amount of the donation, the property the gift is for, and their relationship to you.  The letter must also explicitly state that the money is a gift and requires no repayment.  

Document the gift.  Every step of the gift transaction needs to be documented.  First the donor will need to provide a bank statement to prove their ability to give the gift.  Then, the transfer of the money will also need to be recorded.  It if was a check, a copy of the cancelled check will be required and if it was a wire transfer, the appropriate document will need to provided to show that as well.  After the transaction is complete, you will need to provide an updated bank statement to show that your account now has the gift funds.  

The ability to buy a home is much easier when you have a little help, especially with gift funds.  This will allow you less time to save for a down payment and more time to look for the home of your dreams.  

For more information on loan programs and down payments, please call us at 800.461.4152 or fill out an application by clicking here.  

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