If you received Monetary gifts to help with your mortgage payment or closing costs, then you will need a gift letter from the donor, saying that you do not need to pay it back. The letter should clarify that money is a gift and not a loan.
“The gift letter acknowledges the source of the money and, more importantly, the borrower is not responsible for returning the money,” says Julianne Joseph, member director and member engagement of the government’s housing programs for the association at Mortgage Bank.
Lenders also use gift cards to confirm that your gift funds come from acceptable sources, says Bill Banfield, Executive Vice President of Capital Markets, Achen Loans. Some lenders may, for example, only allow gifts from blood relatives.
Knowing how to use gifted funds to buy a home and what documentation is needed can help you avoid delays in opening the door for homeowners, says Banfield.
If you are lucky enough to receive a gift money, here is what you need to know about putting it towards the purchase of your home.
Mortgage Down Payment Gift Rules
Before you accept a gift or ask your friends or family members for help advanced payment Or closing costs, talk with your lender about what your loan program allows. The terms of the gift amount vary by lender and loan program.
Bainfield says the borrowers “need to confirm how much needs to be paid from their own funds and whether the gift can come from another source.”
Some loan type limitations that can give you money for a down payment. “Conventional loan“For example, only allow homebuyers to use the funds that come from their family members,” Banfield says.
Because guidelines can change at any time, check with your lender to learn more about specific gift rules.
What Information Should a Mortgage Gift Letter Include?
Your lender should be able to give you a template to ensure that your gift letter passes through the muster, Banfield says.
Rocket Mortgage, a division of Rocket Loans, offers borrowers a sample letter to help them create their own draft, reminding them to include:
- Name, address and phone number of the donor.
- Recipient’s name and relationship to donor.
- Address of the property being purchased.
- Dollar amount of gift and date.
- Was the gift used earnest money.
- Confirmation that neither the donor nor the recipient received a gift fund from any person or entity associated with the sale, such as a builder or banker.
- Accept that the gift amount is not a loan.
- Signature and date of recipient.
- Donor signature and date.
“The homebuyer is responsible for submitting all documents,” says Banfield.
This means that if you use more than one gift, you will need to provide more than one gift letter to the lender, along with proof of donor assets and liabilities.
What is known about down payment gifts?
Mortgage bankers want to verify that donors can pay towards the down payment or closing costs.
Joseph says, “They want to track the sourcing of Ziffer’s funding and make sure that the person giving the gift has the ability to provide it without straining themselves financially.”
Some people may hesitate to provide their personal financial information when they themselves are not borrowing, she says.
“The biggest thing is making sure that the donor understands that they have to provide documentation,” Joseph says.
Borrowers should be transparent with donors about the potential need for a paper trail, including bank statements. Some lenders require a two-month bank statement, and others may ask for three-month documents or canceled checks.
Whether a donor gives $ 2,000 or $ 20,000, the same rules apply: “If money is not coming from the homebuyer’s own fund, they should be able to source it,” Joseph says.
Avoid Closing Delays When Getting a Mortgage Gift Card
Getting a gift to help pay for your down payment or closing costs is good news. But good luck can feel like misfortune in the buying process if you are not well informed.
For one, talk with your lender to find out if a large gift should sit in your account for a certain amount before applying for a mortgage. “In this case the fund will be less likely to trigger red flags,” Banfield says.
The lender needs to know that the money is a gift and not a new loan, which can hurt your ability to repay the mortgage. A bank record presents proof of a gift, which is why donors should not give cash.
Divers and receivers must understand their responsibilities to prevent holdup during Underwriting. The last thing a borrower wants is a blockage on the way to closing due to a gift that should have been a relief, not a burden.
Just tell your lender that you will use a gift when you apply for a mortgage. “Joseph will help speed up the process,” Joseph says.