There are many first-time buyers across the nation who will use gifts from relatives or friends to help with their down payment. Therefore, I have some tips that can help you if you are a first-time buyer using a money gift for your down payment.
Many lenders examine these gifts to make sure you’re not trying to get a second loan. When you have large money gifts put into your bank account, the lender just wants to make sure that it’s not a loan against the property. So these tips can help make things easier for you when lenders start checking your bank records.
√ Cash – cash deposits send up a red flag to lenders. Therefore, you should have your money gifts come in a check or a wire transfer so it can be traced.
√ Gift letter – you can have the person who is giving you the gift write a letter to the loan company letting them know the purpose behind the gift. Also, make sure they add in that it is a gift and does not have to be repaid.
√ Deposit timeline – once the money is added to your account, wait a few months before applying for a mortgage. This step will eliminate many questions lenders usually have.
√ Federal gift-tax regulations – you will need to consider the regulations behind money gifts. If the gift is over $13,000, it will be reported to the IRS and it will be subject to tax.
√ Beware of limits – some lenders may limit how much of a down payment you can use from your gift. While Federal Housing Administration loans do not have limits on gifts, the lender on a conventional loan may require you to have at least 5% of your own money for the loan.
When you receive a money gift for your down payment, check with lenders to see what their requirements are about using your gift for your down payment.