To buy a home, you need a downpayment. The more money that you can put down, the smaller the amount you will need to finance. A downpayment also reflects on your ability to repay a loan, so it makes sense that it should be your own money and just not a gift from someone else.
Coming up with that initial amount can be quite a challenge, especially for first-time homebuyers. You may have to ask your friends and family for some money for the downpayment.
Lenders need to be certain that you have the ability to pay your mortgage. If you don’t really have the money for a downpayment, perhaps you won’t have the ability to pay your loan. That’s why the source of the funds in your bank account matters just as much as how much money you have in there. You can use a gift as part of your down payment, but there are some things you need to know.
When you’re using gift money as part or all of your down payment, the donor needs to write a gift letter to your mortgage company. It needs to be clear that the money is a gift and not a loan. The letter should include the donor’s name, address, phone number, relationship to the client, the dollar amount of the gift, and the date the funds were transferred. It should be a statement from the donor that no repayment is expected and must include the address of the property.
The gift letter itself may not be enough evidence for the mortgage company. If you’re getting an FHA loan, the person who gives you the funds will be required to provide a bank statement in addition to a gift letter. You’ll probably want to let your generous gift giver know this as part of the deal.
The Rules of using Gift Money
- 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. There is a minimum contribution that varies by loan type.
- Gift money on primary residences and second homes.
FHA and VA
- All of your down payment can be gift money.
- If your credit score is between 580 and 619, at least 3.5% of your down payment must be your own funds.
- Gift money on primary residences only.
Timing of Gift Money
Most lenders require a 60-day history of assets for loan qualification. As long as you have documentation for large deposits in the past 60 days, your mortgage company is good to go.
Just get the money a couple of months before you need it. Save your family and friends the hassle of writing a letter, save yourself the complication, and just get your gift upfront.
If you have any questions about gift money or any other concerns about the mortgage process, just contact us at CFS Mortgage. We’re here to help.