Down Payment Gifts
published on 07/21/2014
By Michael Decker, Mortgage Originator, RCB Bank Stillwater
According to the National Association of Realtors, last year 27% percent of all first-time home buyers received a gift from a family member or friend to help them cover a down payment, a percentage of the home’s cost paid at closing.
Mortgage lenders typically accept down payment gifts from relatives or close friends for home purchases, but the gift requires additional paperwork. Let’s talk about how to properly document down payment gifts, which can be used in all types of loans.
If a family member wishes to offer you a monetary gift, it is necessary for them to fill out a gift letter. In most cases, your lender will provide a gift letter for you and the donor to fill out. This letter needs to include the cash amount being gifted, the address of the property for which the gift is being used to purchase, your relationship to the donor and a note stating the money is a gift, not a loan. It is important that both you and your donor share an understanding that the money being gifted is not to be repaid.
The donor also should familiarize themselves with the IRA annual gift tax rules, as taxes may be owed if the gift amount exceeds the annual exclusion. Please consult with a tax professional.
In addition to the gift letter, the donor will need to show proof they have the funds they plan to give you. Typically the donor will provide a recent bank statement showing the funds are available, as well as documentation that the transfer of funds has occurred. Then you will need to provide documentation showing the money has been transferred into your account. Now you get to use the gift to purchase your new home!
Check back with me next week as I discuss VA loans and the benefit they provide for our local veteran heroes.
Opinions expressed above are the personal opinions of Michael Decker and meant for generic illustration purposes only. RCB Bank is an Equal Housing Lender. RCB Bank NMLS #798151. Michael Decker MLO# 370522.
*National Association of Realtors 2013 Profile of Home Buyers and Sellers.