December 1st, 2015 9:25 AM by Jackie A. Graves
Coming up with the money for a down payment can be a headache
for potential new home buyers.
Depending on the home you want, your lender and the type of mortgage, the down
payment can be a hefty sum. Some people use a gift (from parents or others) to
help cover the down payment. But even if you do have a financial gift coming,
you need to be careful how you use it. Check out these details about financing a down payment with a
In order to use a gift on your down payment, lenders generally
prefer the gift to come from a family member. Parents, grandparents and even
siblings can usually give a gift to be used on a down payment. Neighbors,
friends or third cousins twice removed generally cannot. It’s also important
that the money is traceable. Experts say lenders are cautious of cash gifts so
it’s a good idea for your donor to gift the money through check or a wire
transfer. It is also a good idea for donors to document that they are financially
able to make the gift. And if supporting documents are passed on to you
along with the gift, it’s a good idea to keep them readily available.
As of 2015, individuals can make a tax-free gift of up to
$14,000. So, a married couple can give $28,000 to their child or $56,000 to
their child and son- or daughter-in-law. Any greater amount and the donor will
be required to pay gift taxes to the IRS. Depending on the type of
mortgage you apply for, there will be different rules for how much of the down
payment the gift can cover. For a conventional mortgage, if you put down 20% or
more as a down payment, all of it can be from a gift. If you are putting down
less than 20%, part must be from your own money. This amount varies from lender
to lender. Additionally, you can only use the gift on primary or second homes.
For FHA and VA mortgages, gifts can only be used on primary homes.
If you want to use gift money toward a down payment, you will
have to ask your mortgage lender to provide a letter for you and the
donor to sign. The letter must show that the gift is indeed a gift and not a
loan to be repaid at a future date. Different lenders will have slightly
different rules, so it’s important to check with them on what they require.
Before making any decision on buying a home, it is important to
know how much you can afford to pay monthly for your mortgage. Your credit
score will play a part in determining this, since it will factor into the interest
rate you’re approved for on your loan. (You can check your credit scores for free on
Credit.com to see
where you stand.) The down payment will be a large portion of home-buying costs
and a gift from a family member can make the difference between getting the keys and
having to re-sign your rental agreement. Just make sure you and the donor
run the numbers and keep everything documented.
by AJ Smith – To view the original
article click here