Are you getting down payment assistance from a relative?

There are many down payment gift rules that vary depending on the program that the consumers are applying for. The first step should always be to contact a Mortgage 1 lending professional.  We still wanted to share some general rules when the borrower is lucky enough to receive a gift of money for a down payment on a new home.

The down payment gift procedures are;

1. The funds must be accompanied by a “Gift Letter”(the gift letter will be provided by the lender and will vary depending on the program.)
2. Bank account documentation must show the gifted monies as they move from the donor’s account or accounts to the home buyer’s account. If the donor moved the money from another account less than 30 days prior to giving the gift, they will need to provide documentation from those accounts as well.
3. Home buyers are can accept up to 6% of a home’s purchase price in the form of a gift.

Down payment gifts can make it easier to purchase a home. Mortgage 1 allows cash gifts for down payment on a wide range of loan programs including;

• FHA Mortgages
• VA Mortgages
• USDA Mortgages
• Conventional loans
• Jumbo

If you’re getting a cash gift for down payment, be sure that you “receive” the cash gift properly. First time home buyers are most likely to receive a cash gift and are normally not familiar with the mortgage process. The check should be written to the home buyer for the exact dollar amount specified in the gift letter. Photocopy the check and keep one copy for the donor’s records and give one copy to the buyer. The lender will want to see it as part of the process.

If the donor is selling personal stock holdings as part of the down payment gift process, they will want to make document the sale of the stock as well as the transfer of funds from their brokerage account into the account from which the donor is making the gift.

The buyer should physically walk into a preferred depository bank to make the deposit in person. Do not deposit the check online using an iPhone or Android app; or at an ATM machine. Take care to deposit the gift check into the same bank account from which all of the money at closing will be drawn. Deposit the gift funds into a bank account and end the transaction collect a receipt for the deposit and do not make any other transaction. Under no circumstances whatsoever should the buyer “co-mingle” gift deposit with other monies, nor with other gifts. The amount specified on the teller receipt should match exactly the dollar amount on the certified down payment gift letter. The buyer should never bring money to closing from multiple savings accounts. This, too, can complicate paperwork for the lender at a time when the goal is to keep things simple.

It should be noted that there may be tax implications for givers of cash gifts for down payment, and for receivers of them, too. These are discussion points with an accountant, remember that lenders will not report cash gifts to the IRS; it’s not the lender’s responsibility to report and the lender will use the gift letter for underwriting only, in an attempt to approve the loan. Speak to your tax professional prior to making or receiving a cash gift for down payment. Ready to get started?