As lenders tighten mortgage guidelines for Arizona home buyers, minimum down-payment requirements are increasing.
Several years ago, you could finance a home with nothing down. Today, most conventional mortgages require at least 5 – 10 percent.
Because of these guideline changes there has been an increase in the number of home buyers accepting gift funds from family.
Gifts are allowed in most cases but the problem is, if you don’t accept the gift funds in a “lender-friendly” way, the mortgage underwriter could reject it, and negate it.
Three Steps To Success With Your Down Payment Gift Funds
You can’t just deposit a cash gift into your bank account. You have to follow a series of steps and keep records.
- Provide an acceptable gift letter signed by all parties
- Provide documentation of the gifter’s withdrawal of funds via teller receipts
- Provide documentation of the giftee’s deposit of funds via teller receipts
Lenders require these 3 steps for two basic reasons. First, they want to make sure that the gift funds are “clean” (i.e. not laundered). Second, they want to make sure the gift is really a gift and not a loan-in-disguise. It’s why lenders typically require that the loan application be accompanied by a signed, dated letter.
I am the [relationship to recipient] of [name of recipient] and this letter serves as evidence that I am gifting [name of recipient] [amount of gift] to be used for the purchase of the home at [complete address of property]. This is a gift — not a loan — and there is no expectation of repayment. Signed, [Signature of gifter]
Keep The Cash Gift Funds Separate From Your Other Money
As an additional step, home buyers receiving gift funds should make sure that funds are not commingled at the time of deposit.
If the cash gift is for $20,000 therefore, the bank’s deposit slip should indicate that a $20,000 deposit was made — nothing more, nothing less. Don’t add a random $200 deposit to the transaction, in other words. The $200 deposit should be a separate transaction.
You should also worth note that gifting funds between family members can create both legal and tax liabilities.
If you’re unsure about how donating or receiving a gift may impact you, call or email me directly at 602.361.0707 or email@example.com If I can’t help you with your questions, I can refer you to somebody that can.
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