Follow The Rules When Using Gift Money
The National Association Of Realtors (NAR) reported in a 2012 home buyer survey that 24% of buyers utilized gift funds to help them purchase their home. If you are considering using gift funds in your purchase transaction there are some rules that must be followed in order for the funds to pass an underwriter’s scrutiny.
There are several guidelines that that need to be followed in order to properly process and deposit gift funds in your bank account for your purchase.
Complete a gift letter that will be supplied by your lender which must include the following:
– The amount of the gift
– Address of the property being purchased
– The relationship of the giver to the gift recipient – the donor must be a family member
– Wording that states that the gift is indeed a gift and that the funds are not a loan to be repaid
– Date the funds were transferred
– Signatures of donor and recipient
Create a paper trail of the money
– Deposit the funds into an account that will be used as the source of all funds for the transaction
– Keep all deposit receipts associated with the gift fund deposit
– Donor will need to show ability to produce the funds via bank account statements, etc.
– Donor will need to show the money has come out of their account, i.e. cancelled check
– Recipient will need to document the funds coming into their account, the funds that are deposited must match the amount specified in the gift letter exactly via account statements
Failure to adhere to the rules of gifting could result in the denial of your loan. Above all underwriters are interested in a detailed tracking of the funds from donor account to recipient’s account.
Rules for gifts vary by loan type:
Conventional Mortgages
– If you put down 20% or more, it can all be from a gift
– If you put down less than 20%, part of the money can be a gift, but part must come from your own funds. This minimum contribution varies by loan type
– Gift money can only be used on primary residences and second homes
FHA and VA Mortgages
– All of your down payment can be gift money
– If your credit score is below 620, at least 3.5% of your down payment must be your own money
– Gift money can only be used on primary residences
Wallingford PA Real Estate – Wallingford, PA 19086
