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A stressful aspect for many homebuyers is coming up with the down payment. To help cover it, first-time and repeat buyers get help from a friend or relative through a gift payment. Many lenders allow cash gifts to cover conventional and FDA, USDA, and VA loans. If you need help with covering a home mortgage loan, a gift payment can be of invaluable assistance. However, they come with some restrictions, and if you receive them within 60 days of your closing, you will need to provide a source for where you got them. Learn How to Write a Gift Letter below.
Gift Money Types Allowed in Real EstateGift Money Types Allowed in Real Estate
Most money gifts come from either one or more individuals.
In most cases, these gifts are; restricted to family members. The exception is FHA loans, which typically allow gift contributions from a friend, relative, or employer. However, an FHA loan is subject to a maximum gift payment of 6% of the purchase price, which can only be used for closing costs.
Another type is a down payment that comes in home equity. For instance, a family member could offer to sell you the home for less than its appraised value. You save the price difference can then be used as a down payment, similar to a cash gift.
What Gifts are Unacceptable?What Gifts are Unacceptable?
The most important thing with any gift payment is legitimate, regardless of the type of loan. There can be no side arrangements between the Donor and the receiver to pay back the mortgage.
The gift can also not come from anyone who would benefit from the sale, a lender, an agent, or a seller, even if they are related to the buyer. Any funds from someone involved in the transaction are subject to the limits of “interested party contributions” as designated by the loan terms. Any funds such as this cannot be; used for the down payment, only the closing costs.
Gift Letter for Mortgage Down PaymentGift Letter for Mortgage Down Payment
If you use a gift payment, you’ll need a gift letter for the mortgage if the gift is; made within three months of the closing. Typically, lenders want to see your statement history for the last three months. If the gift was; made before then, it’s unlikely you’ll need one. If it has been recently received or is still in the Donor’s account, you’ll need to prove it is legit with no strings attached.
Even if you are not taking out a mortgage loan and paying all cash, you’ll still need a gift letter to explain the source of the funds. Usually, not the case when buying a condo in NYC, but it should be expected if buying a co-op. The co-op board will review your finances as part of the application process. If you’re receiving a gift payment from your family to cover the costs, you’ll get a gift letter, even if you’re not taking out a mortgage.
How to Write a Gift Letter SamplesHow to Write a Gift Letter Samples
Gift Letter Sample 1Gift Letter Sample 1
You can keep it informal and straightforward if you’re only writing for a co-op board or seller that wants to verify the gift. See the second example below for one to use when applying for a mortgage.
April 2nd, 2018
1058 Laymen Court
New York, NY, 10001
Dear Sir or Madam:
Kyle Jowett and Kim Jowett intend to make a cash gift of $600,000 to Philip Jowett, our son, to purchase the property located at 545 Raver Croft Drive, New York, NY, 10019.
No repayment is expected or implied in the gift, either cash or future services, and we will file no lien against the property.
The source of the gift is the Bank of the United States.
Signatures of Donors
Kyle Jowett and Kim Jowett
Telephone Number: 555-555-555
Gift Letter Sample 2Gift Letter Sample 2
If the gift letter is for a mortgage lender, it must be detailed and formal. Something like the following should suffice.
April 2nd, 2018
1058 Laymen Court
New York, NY, 10001
1. General Information
Dear Sir or Madam:
I, Kyle Jowett of [Donor’s mailing address and telephone number], wish to provide a gift of $[Amount] to my son, Philip Jowett, to close the mortgage transaction on the purchase of the property located at [Address].
2. Location of the Funds
The location of the funds is at [Account information: Depository name, address, and account number].
3. Donor/Recipient Certification
A bonafide gift, with no obligation, expressed or implied, that it be paid back in the form of cash or future services. The funds provided to the homebuyer have not come from any person or entity interested in selling the property.
Donor Signature and Date:
Recipient Signature and Date: