What new buyers should know about down-payment gifts and the mortgage application processBy John Kirchner
It’s a happy new year, indeed, for soon-to-be homeowners who received the gift of a down payment during the holiday season. (And you thought asking for a new iPad felt excessive.)
Gifting down payments was the topic of a recent New York Times advice piece from Lisa Prevost. Unfortunately, it’s never as simple as writing a big a check. Whether gifting the 3.5 percent down payment for a Federal Housing Administration loan or the traditional 20 percent alone, there are many tips givers and receivers should take into account to ensure a down-payment gift doesn’t trip up a loan application.
- Have the money come in a check or wire transfer so that it’s traceable. Lenders often become cautious over cash gifts.
- Have the giver provide the lender with a gift letter, which verifies the money is a gift, the specific amount being given, the relationship to the borrower, and that repayment is not required.
- Deposit any gift money into the borrower’s account a few months before applying for a mortgage so the lenders have fewer questions about it, Mignone says.
- Consider federal gift-tax regulations: Individual gifts of more than $13,000 must be reported to the IRS and are subject to tax.
- Be aware that certain types of mortgages may limit how much of a down payment you can receive as a gift. For example, with conventional loans, lenders may require at least 5 percent in the borrower’s own money that is not a gift. However, FHA loans — which are popular among first-time home buyers — do not have any limits on gifts and borrowers can use gifts to cover the entire down payment.