Are you expecting a cash gift for the purpose of paying the down payment on your next house? You're not the only one!
The ever competitive U.S. economy along with the growing number of first time home buyers has, in turn, raised the number of mortgage applicants that uses mortgage gift money for the down payment on a new home. If you're one of these people, better make sure you accept your gift money properly; otherwise, your lender might just reject your loan.
Rules for Cash Gifting
Acquire an Authorized Down Payment Letter
Receiving a gift down payment can have a right way or wrong way of doing. Randomly depositing gifts into your bank account will just get your loan denied.
Follow the 3 steps in receiving mortgage gift money or down payment cash gift. This works for for any loan type such as conventional, FHA, and VA among others.
First, compose a letter that contains the succeeding information:
- Amount of the Gift
- Subject Property Address
- Relationship of the Gifter and the Giftee
- Indicate that it is a gift and not a loan
The letter should be concise and should not contain extra information. Then, have it signed and dated by participating parties.
What The Giver Needs To Do
Now that the letter is written you'll want to be extra certain that you don't disregard any rules. By leaving a strong "paper-trail" in your transactions, it will do just that.
Let's say you want to vend your stock holdings (as part of the gifting process), Make sure that the sale of your stocks are well documented including funds transactions from your brokerage accounts to the account you wish to transact with.
Next, you might want to write the home buyer a check for the precise amount specified in the letter. Then, make copies of the check and secure one for yourself and another for the home buyer.
What the Receiver Need to Do
Now that the check has been given, the buyer should personally go to the selected bank and deposit the check. From whatever bank account you choose, make sure that it is the bank account from which all your money will be drawn. It's important to keep it simple.
After you've selected the bank:
- Deposit the mortgage gift money into a bank account
- End your transaction
- Collect receipt of your deposit
Note: It is not important to not "co-mingle" your mortgage gift money deposit with your other funds or gifts. If the amount in your account is inconsistent with what's stated in the letter, the lender will most likely invalidates your letter and the funds that follow, as well.
Tax Advisory on Down Payment Gifts
Keep in mind that there will be tax implications both to the receiver and giver when using down payment gifts. Moreover the it's not the lenders report these gifts to the IRS. The letters are for underwriting only.
Are you planning on using your mortgage gift money? Let's talk about it bellow by commenting!
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