Many first-time home-buyers receive down payment the help of a family member or close friend, but many do not realize there are specific guidelines they must follow for a home purchase to avoid trouble in the future.
Down payment present? Be careful
To begin with, the down payment must be a gift. If it’s considered a loan, the loan originator must then factor that into your mortgage approval amount, and buyers may then be eligible for a less mortgage money than they need.
Buyers need a gift letter from the person or persons who gave them the funds. The person who gifted the funds must state in writing that they will not plan on asking for the money back, and that it is, indeed, an actual gift.
“The gift letter is very serious,” says Casey Fleming, mortgage adviser and author of The Loan Guide: How to Get the Best Possible Mortgage. “While it is doubtful that a lender would ever audit a file after the fact to see if the recipient is paying the donor back, if the transaction goes bad, you might very well find yourself with a subpoena in your hand.” Remember, you should not lie on a mortgage application. It’s a felony.
The gifter may also be required to provide bank statements – possibly two months’ worth.
Buyers should also secure the down payment, including any gift portion, during the early planning stages of a house hunt in order to save them from unexpected delays afterwards.
“If the funds are ‘seasoned’ – meaning that they’ve been in the account long enough so that the last two bank statements don’t show the deposit – the gift does not have to be addressed,” Fleming says.
Also, you will find a limit to the amount a buyer can be gifted tax-free, as outlined by IRS rules. Any gift of $14,000 and up will face a tax bill under current guidelines.
Having said that, “it is $14,000 per year per donor, so a couple could give $28,000 ($14,000 from each) to their child,” Fleming explains.
Nick & Cindy Davis work with several lenders who can assist you here in the Tampa Bay area. We know how to structure your financing so to in compliance with the laws and still assist you in your purchase. When you are ready to get started, give a call at 813-300-7116 or simply click here and we will be in touch.