So, you are ready to buy a home, have met with a lender, but don’t have enough money saved for your down payment. What to do?? Luckily a family member or friend wants to help you with that.
Can you just deposit that money into your bank account and be done? The answer is “NO”. It’s called “Gift Money” and you will have to account for it.
Whether you receive $100 or $10,000, the source of the funds in your bank account will matter just as much as how much money you have in it. Why?
Your lender will look at your credit score, income, and assets to see if lending you money is a risk or not. The Underwriter checks your account to make sure that the money lines up with what your earnings are. Any large deposits outside the norm are a red flag and they will need clarification on where those monies came from. They need to make sure that those are gifts and not loans from friends or family. Add a personal loan on top of a mortgage loan & you may find yourself in dire straits when payment is due!
If using gift money for some or all of your down payment, you’ll need your family member or friend to write a gift letter to your mortgage company clarifying that the money is a gift and not a loan. Your lender will guide you on what information the letter should include.
Sometimes the gift letter in itself may not be enough evidence for the mortgage company, depending on the type of loan you are getting, as Conventional, FHA, VA & USDA loans have different guidelines.
If you know that you’ll be getting a financial gift to help with your down payment, be prepared to document it for your mortgage company.
The rules and regulations around gift funds are just one aspect of what to know when you’re getting ready to buy a home.
Contact me, Debbie Hanna, to go over the home buying process in detail. Our Homebuyer’s Guide is a wealth of information that I am happy to share with you!