Just Married, Happy Birthday and Happy Anniversary; those are the occasions you hear about getting gifts. Have you ever heard anyone say, “Congratulations on buying your house and I’m happy to help with the down payment”? Many first-time homebuyers receive mortgage down payment gift funds to buy a home. That blessing comes with rules that must be followed for the lender to approve a mortgage.
What are gift funds?
When a homebuyer receives help via a monetary gift to cover partial or all of the closing costs and down payment for their new mortgage, it is called down payment gift funds. Down payment gift funds include any cash, check, or bank wire given to the homebuyer to help buy a house outside of their own income.
Gift funds to Buy a House CAN come from:
- A close relative (mom, dad, sister, brother)
- Well documented friend who has a vested interest in the homebuyer (domestic/unmarried couple)
- Government organization (local or national home buying programs)
- Religious organization (church)
Here’s an example of a relationship that is inappropriate to give a gift:
(A quote from the movie “Spaceballs”)
Dark Helmet: I am your father’s brother’s nephew’s cousin’s former roommate.
Lone Star: So what does that make us?
Dark Helmet: Absolutely nothing!
Gift funds for a mortgage down payment can only come from an approved third party. Aditionally, gift funds cannot be expected to be paid back. So it’s super important for you to understand that homebuyers can borrow money to buy a house from a lender but they cannot borrow or receive money as a mortgage down payment unless it is a gift from one of the four entities mentioned above. This is noteworthy because the last thing that any homebuyer wants is to encounter legal issues when buying their dream home.
(This is a rule set by the government and not the lender.)
Once it has been established that a homebuyer is receiving down payment gift funds from one of the approved entities, documentation will need to be provided in order to confirm the origin and final destination of these gift funds.
Basically, the lender will require proof from the giver and receiver of the funds. Because of this, the person or entity that’s giving the money will need to provide a statement of the account where the gift funds originated and the homebuyer will need to provide a statement of their bank account showing the gift fund deposit.
Gift Letter for Mortgage Down Payment
Lastly, gift letter must be signed by the person giving the monetary contribution for the mortgage down payment. The gift letter is a document that states that the down payment gift funds are being given freely and without any obligation to pay back.
In conclusion, lenders need to make sure that the new homebuyer is not obligated to pay back any money outside of what appears on their credit report at the time of the loan process. Yes, this may sound like a bit much. Consequently, there are professionals qualified and prepared to walk you through the process.
If you have a question on who can and cannot give down payment gift funds as partial or all mortgage down payment help, please don’t hesitate to contact Gold Financial Services. Speak with Mortgage Loan Officer – Brian Chunn /NMLS#1435223; Office (210) 366-1070 x 196, Mobile 210-274-6296 or email [email protected]
(This post was a GUEST BLOG by Brian Chunn)
(Please reply to this blog post under comments if you have any thoughts to add to the discussion.)