February 18th, 2015 8:59 AM by Jackie A. Graves, President
In the long run, buying a home can often be cheaper than renting. But until you see the payoff, your
wallet may feel some pain. And it all starts with the down payment. (Plus,
to avoid private mortgage insurance on a conventional loan, you’ll
need to put 20% of the purchase price down on a home.)
Sound unmanageable? If you’re lucky enough to have a family
member who wants to help out, you can use gifted money for your down
payment. But there are some rules you need to follow to have your gifted down
Who can donate?
A gifted down payment can’t come from just anywhere.
“The donor of a gift used for a down payment on a
home must be a blood relative, and not a party who might be interested in
closing the transaction,” said Matt Weaver, vice president of
mortgage lending with PMAC Bank in Boca Raton, FL.
In some cases you can also receive a gifted down payment from a
spouse or fiance (or fiancee), but don’t count on getting a loan from a family
friend and still getting approved.
“Lenders will look to verify the relationship and also to
confirm that the funds are indeed a gift, and not a loan,” Weaver said.
If your down payment was a gift, you’ll have more paperwork than other applicants. A
lender will require a letter from the donor before it can finalize
and approve your loan.
“Gift funds require a letter from the donor of the funds stating
name of the donor, the amount, and the date,” Weaver said. “The letter should
also contain a statement confirming that the funds do not require repayment.”
The letter can be sent directly from your family member to your
lender, or given to you to give to your lender.
Proving the source
Once the lender receives proof that the down payment was indeed
a gift, you’ll also need to prove that the donor gave you the funds. If you’re
applying for a conventional mortgage, you’ll need to provide your bank
statement showing the funds in your account. The donor will need to supply the
canceled check, according to Weaver. If you applied for a Federal Housing
Administration loan, both you and the donor will need to supply copies of your
bank statements showing the transaction.
If the donor didn’t write a paper check, don’t fret.
“For FHA loans, bank statements are required from both parties
showing incoming and outgoing funds,” Weaver said. “For conventional loans, the
borrower’s bank statement and the wire transfer confirmation page from the
donor are needed.”
Letting the money age
Some home buyers choose to ask for the gifted down payment early
and wait to apply for a mortgage, letting the money “age” in their account.
While this will work in theory, as most lenders go back only 60 days when
looking into your bank statements, according to Weaver, there really is no
reason to do so.
“Borrowers should keep in mind that gifts are permissible and
create no material difference when applying and obtaining mortgage financing,”
By: Angela Colley | To view the original article