Gift Letters – Jim Quist is the president and founder of Home Loans. He has over 20 years of experience in the mortgage industry as an entrepreneur, mortgage broker and loan officer. Jim’s goal is to help people buy homes.
A gift certificate is a great way to get help with your home down payment. Only family members can give you money, and your spouse or boyfriend is considered a gift-giving relative. However, regardless of the type of loan and the amount of gift funds used, it is important that you provide the necessary documentation to verify the funds. We often see this when parents want to help their children buy a house by giving them money. We see it more often as a wedding gift. But if you’re talking about getting home equity financing, your lender needs to know where the money is coming from. How do I document the money in the Gift Letter? Who is authorized to give gift money? How much of the gift money can I use? What if the giftee doesn’t want to show their bank statements to confirm they have the money? What else do we need to know? Do you have specific questions that need to be answered or a situation that you need to know about? How do I document the money in the Gift Letter? Providing the right paper trail is essential. Lenders need to look at how they provide money to borrowers. Each mortgage lender will be slightly different. But they will probably give you a template that you can use. The following information must be included in the gift letter: Name of the borrower(s). Donor relationship. Usually one family member is required. The amount of gift funds. Property address. Giver’s name, current address, telephone number. Signed signatures and dates for gift and recipient. A statement that all parties consider the funds involved a gift from the donor and that there is no obligation to repay. Here is an example of a gift letter template we use: You will also need a copy of the account statement for the gift that shows you have the funds to make the gift. For example, if the gift is $10,000 from a parent, the parent must provide a full bank statement showing they have $10,000 to give. We recommend using a cashier’s check for the gift. Borrowers will make a copy of the check and deposit the funds into their account where the down payment will be made at closing. Be sure to make a copy of the deposit. Obtain a statement of activity for that account from the date of the last regular statement to the date of the gift showing the deposit and new balance. The deposit may not show as pending: some banks show the funds transfer this way within a day or two. If this happens to your bank, get a statement of activity up to the date when the outstanding will be cleared. As a general rule, you want to document the money and your account for at least 60 days to avoid problems with your mortgage lender. Who is authorized to give gift money? IMPORTANT: Only family members can give you gifts. Your spouse or boyfriend is considered a relative for gift purposes, but not a friend or the person you are dating. As for what relative can give you, it depends on whether you get a conventional or FHA loan. For Conventional Loans: Spouse or domestic partner Spouse Children or other dependents Parents and grandparents Aunts or uncles Fiances Siblings/Nephews Cousins For all of the above, the borrower may be bound by consanguinity. , marriage, adoption or legal guardianship. The donor may not be, or have any connection with, the builder, developer, real estate agent or anyone else interested in the transaction. For FHA loans: Borrower’s family member. The borrower’s employer or union. Close friend with a “clearly defined and documented interest” in the borrower. Charity organization. Government agency or public entity that has a home ownership assistance program for low- and moderate-income families or first-time buyers. (Source: FannieMae.com and HUD.gov) How much of the gift money can I use? Before you start passing the hat at your next family gathering, remember that the amount of gift funds available for a down payment is limited. Limits depend on the type of loan. For conventional loans: You can only use gift money for primary or secondary homes. You can use gift funds to cover the down payment of up to 20%. For an FHA loan: You can only use gift money for the primary home. You can use gift funds to cover your entire 3.5% fee. What if the giftee doesn’t want to show their bank statements to confirm they have the money? This is very common. Often, the gift party does not want their family member to see their bank information. However, the amount requires it to include the gift of funds available to close. The lender will know about this because there is a large deposit in the borrower’s account that will require an explanation. The gifting party can send the bank statement directly to the loan officer and emphasize that they do not want the receiving party to see it. What else do we need to know? Have your lender calculate the closing amount before you ask for the amount of money you think you need. You must do this when you apply. You will receive money to close the number. Subtract the borrower’s actual funds and the balance should be the gift amount. Again, start transferring money as soon as possible. It is clear in the document how much the lender wants. Do not deviate from the documentation requirements without first discussing it with your lender and getting an agreement that what you are asking is OK. Don’t spend money in your account on something you don’t need before closing. Keep your cash balance as high as possible. Do you have specific questions that need to be answered or a situation that you need to know about? At , we have the industry knowledge and experience to help you close on your home in record time. We pride ourselves on providing our customers with excellent service, lower prices, lower fees and lower monthly payments. If you have questions or are ready to get started, schedule a call today. Let us move you toward your home ownership goals.
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If someone gives you money to help you buy a home, your lender will need a gift deed, along with documents showing how the money changed hands. Knowing the rules for completing a gift letter for a loan will help you avoid mistakes that could delay your loan approval.
A gift letter for a loan is a written statement that confirms that the funds given to a borrower for a down payment are a gift rather than a loan that must be paid. The letter must explain who gave the money, where the donor’s funds came from, and the relationship between the donor and the recipient.
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Gift funds can also be used to pay closing costs, which are usually between 2% and 6% of your loan amount, depending on the amount of your loan. Some programs even allow gift money to be used to meet mortgage reserve requirements, which are funds set aside to cover monthly payments over several months.
Lenders often provide a standard mortgage gift letter template for you to use. Below is a typical gift letter template that you can share with donors. Follow the basic instructions in this sample letter to fill out the form and make sure you understand the fine print.
I/We, the donors A and B, have given a gift of $15,000 to the borrowers C and D, and no payment for this gift in the form of cash or future services to the recipient(s) is expected or implied.
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