Getting a Financial Gift? Here Are the Rules
Home buyers, especially first time home buyers, say the biggest obstacle when buying a home is saving up enough money for a down payment and closing costs. And even though there are a few popular loan choices for first-timers, they still typically need to come up with a down payment of at least 3% of the sales price plus more for closing costs.
On a $500,000 home, 3% is $15,000. Closing costs can run $5,000 or more. That’s a significant amount of cash you will need to have on hand to close. In addition, you may need cash reserves to qualify. Your loan officer can provide you with how much cash you’ll need at the closing table based upon the type of loan you qualify for. Besides saving up money on their own, buyers can also get a financial gift to help with the down payment and loan fees.
Who Can Gift Funds to Me?
Gifts primarily come from family members but there are also other sources for financial gifts beyond family. Besides a family member, gifts can also come from close friends with an established relationship, qualified non-profits designed to assist first time buyers, and even employers can help out by participating in a qualified employee assistance home buying program.
Those funds, however, must be “sourced” by the lender to make sure the funds are coming from a qualified source. The lender will provide a Gift Letter to the applicants to be completed by the donor. The gift letter will show who is making the gift, their names and addresses, which account the funds are coming from and an account number and how much the gift will be. And just as important is a statement that the funds are a gift and do not need to be paid back.
Options for Receiving Gift Funds
The funds can be delivered with a cashier’s check to the buyers. The buyers must take the cashier’s check to their bank, get a copy of the deposit slip and the check, and get an updated statement showing the amount of the gift and the new deposit. Not following these guidelines can cause the lender to ignore the gift and not count it as the total amount of funds toward the settlement.
The easiest way to verify the donated funds is to have the donor’s complete the gift letter but instead of getting a cashier’s check the donors can wire the fund directly from their account to the settlement agent. The settlement agent will note on the final settlement statement the source of the funds and list those funds on the final statement.
You Need An Experienced Mortgage Broker
Gifts are an attractive way to help attain homeownership. There are many rules around gifts and navigating those rules are critical. Contact us for more information around gifts to help with your down payment and closing costs and get you in the home you desire.