So you are going to buy that first home. You found the right house, a little fixing up and painting required, but the layout and location are just right. The sales price is in your range and you know you can handle the new payment. Now it's just a matter of calculating the cost of buying.

You sit down with your lender to understand clearly the closing costs on your transaction. Title company fees such as escrow settlement, recording, warranty deed, tax stamps, and courier expenses. Property survey, home warranty, homeowner's association transfer fee, it seems the list goes on and on. You learn that the final tally is nearly $4,000 just in costs not including the down-payment you have been saving. But you aren't concerned because your parents are giving you a $3,000 gift to help you on your new adventure of home ownership.

The $3,000 gift...while a blessing...there are steps to take in making sure the mortgage company will accept the gift and that the gift giver is prepared for the documents that will be required.

1)      Determine if the $3,000 will be transferred to your account PRIOR to closing on the home or AT closing. This is very important to have determined ahead of time as it alters the documents required.

Funds transferred PRIOR to closing, follow these steps:

1)      Make the date of transferring the money at least one week prior to closing. It's understandable that the gift giver wants to make sure you are going to buy this home but waiting until the day before closing will cause you fits.

2)      If the giver withdraws the money into cash or a money order, they will need to provide a copy of the withdrawl showing their name. There has to be a paper trail to show who the money came from.

3)      If the giver writes you a check, then you will need a copy of the check and it also needs to show the givers name on the check.

4)      The gift getter, you, need to provide proof of the deposit into your account.

5)      If the money is electronically transferred, you need to make sure that the wire transfer CLEARLY shows the giver's name.

6)      Your lender will have a sample gift letter to use which must be signed by all parties.

Funds transferred AT closing, follow these steps:

1)      A completely filled out and signed gift letter will be required prior to closing

2)      The gift giver MUST provide proof they have the funds to give the gift. If they are giving you $3,000 then they need to provide a bank statement or some other proof they have that amount to give to you. Make sure the gift giver is aware of this and is comfortable supplying their bank statements to your lender.

3)      Confirm AHEAD of time with the lender AND title company if the money should be sent to the gift recipient or to the title company. Some lenders will want the money given directly to the title company since it is being given AT time of closing and the recipient may not be able to get the check cashed.

While lenders can certainly have more or less requirements and some programs have restrictions on being able to use a gift, who a gift can come from, and/or the amount of the gift, these guidelines above will help you and the gift giver be prepared for the paperwork of using gift funds.

©2007 Ken Stampe

Ken Stampe is a Mortgage Loan Originator, Mortgage Author and Mortgage Loan Officer Instructor living in Dallas, TX. Ken provided his first client a mortgage loan in 1996 and writes about home buying and mortgages to help clients make smart home mortgage loan decisions. Contact by email at Ken@KenStampe.com

What resource do SMART home buyers use?... Mortgage Calculator Bank.com