‘Tis the season to be Jolly…and Generous when it comes to getting gift funds for your down payment
Christmas and the Holidays are a time for friends and family to get together in the warmth of one another. Perhaps, for some, it’s the only time of the year that families see their loved ones and when word gets out you are thinking about buying a new home, suddenly Uncle Bob and Aunt Sue want nothing more than to give you ‘help’ with your Down payment!
Seems simple enough, right! Getting gift funds for your down payment from loved ones during the holidays is wonderful! However, before you start your home search, you need to be aware ‘the source of the funds’ will matter to you almost as much as it matters to someone else…your mortgage company and specifically, the underwriter!
Who’s this underwriter fella anyway?
The underwriter is those ‘behind the scenes’ folks that make sure you are a safe bet to pay back your home loan. They do the credit checks, verify your income and assets and all that fun stuff!
Why are they so interested in your gift funds for your down payment? Well, it’s pretty simple really. They want to make sure you’re in fact, getting a gift and not a loan you’ll have to pay back later. In short, they want to make sure you’re not getting a loan to get a loan…follow me?
So how can an underwriter establish that deposits in your bank account are gifts and not loans? They’ll need the gift-giver to write a gift letter. Let’s take a look at what that means.
7 Things You’ll Need for Your Gift Letter
It seems only right that since Uncle Bob and Aunt Sue went to all this trouble to gift you money for your down payment, the least they could do is write your lender a nice letter too!
Here’s what your gift letter should include:
- Gifters name, address and phone number
- How you are related
- The amount of the Gift funds for your down payment
- The date the funds were transferred
- Clear language that no repayment is expected
- Their signature
- And the address of the home you want to purchase
Some loan programs may still need more! So, be sure to talk to your lender…
How Does the Loan Program affect the Gift Funds for your Down Payment?
One thing to consider is that the amount of gift money you get, how much you need and how much of your own money you plan on putting down! Below is a quick outline of how your gift funds for your down payment can determine what kind of loan you can get.
Conventional Loan Program
- If the gift funds for your down payment is 20% or more of the purchase price…it can all be used.
- However, anything less than 20%, then only part of the money can be a gift and the rest has to come from you. Talk to your lender as there are a multitude of different Conventional programs available.
- And if this is for a rental or investment property…sorry, no gift funds for your down payment allowed.
FHA/VA Loan Program
- This one is more like it! ALL YOUR DOWN PAYMENT CAN COME FROM GIFT FUNDS!
- However, if your credit score is between 580 and 619, at least 3.5% of your down payment must be your own money. FHA just announced some 3% down payment options so again, talk with your lender.
- You can only use gift funds on your down payment for your primary home purchase.
When can you use your Gift Funds for your Down Payment?
Most lenders and underwriters will want to have a 60-day history of assets. So, put that dough in the bank ASAP! Also, within that 60-day period, be sure you have dated documentation of the amounts gifted.
Does the amount of of the gift matter?
Uncle Bob and Aunt Sue want to gift you a boat load of cash! As outlined earlier, make sure they follow the 7 things needed in your gift letter. However, cousin Ernie is not as generous and drops you an envelope under the tree for $100 bucks. Do you need to go after Ernie for a gift letter and all the rest? Probably not.
Generally speaking, the underwriter will need to verify the source of any large deposit. Again, talk to your lender to be perfectly clear but what I get from my financial folks is any one time deposit that exceeds is at least if not more than half of what you usually make, you’re more than likely going to get the underwriters attention!
So, Enjoy the Holidays and if your do get a nice envelope under the tree this year, take the right steps to insure you can use it!
I am passionate about Real Estate and eager to answer all of your real estate questions! Text or Call me at 360-880-2356 or email me directly to ask about Buying, Selling or Investing in today's Real Estate Market - serving Lewis County & Thurston County, WA.
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Mountain Valley Real Estate