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Important Facts About Gift Funds

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Real Estate Agent with Coldwell Banker Realty MD RE License 579412

Important Facts About Gift Funds

You are getting ready to buy a new home and your parents give you some money to help with the downpayment and closing costs. Now what?

There are many rules and regulations for buying a house and applying for a mortgage. For example, your lender must know where the down payment money comes from.  If you are receiving help from friends and family, here are a few tips

What are Downpayment Gifts - a downpayment gift is money that a buyer receives from someone else to use toward a down payment or closing costs during a home purchase. Downpayment gifts do not need to be paid back.

Gift Rules and Gift Letters - different loan types have different restrictions on who can give you gift funds, how they can be used, and how they need to be documented. Regardless of loan type, most lenders need a gift letter that documents the details of who is gifting the money, what their relationship is with the buyer, and how much is being given. This letter also states that the money does not need to be repaid and must be signed by the donor. The lender may also require that the donor verify sufficient funds and document where the funds are coming from.

Conventional Loan Gift Rules - conventional loan lenders often allow buyers to use gift money for downpayment, closing costs, or financial reserves. However, sources of gift money are restricted to romantic partners and family members. And, gift funds can not be used to buy investment properties.

FHA Loan Gift Rules - FHA loans allow buyers to use gift money to pay closing costs, mortgage expenses, and down payment. Friends, family, employers, and other entities can gift money. In addition to the gift letter, the donor must provide proof of both withdrawals from the source account and deposit to the buyer’s account.

USDA Loan Gift Rules - USDA loans offer unique benefits to buyers in rural areas by not requiring a downpayment to purchase a home. As such, gift funds aren’t often used toward a downpayment, but they can be used to pay for the loan’s closing costs. This money cannot be used for reserves or to help the buyer make mortgage payments. Gifts can come from family members, employers, labor unions, charitable organizations, or a homebuyer assistance program.

VA Loan Gift Rules - Like USDA loans, VA borrowers don’t need to make a downpayment when using a VA Loan. Buyers can use gift funds to cover their closing costs and pay for the funding fee. Almost any person can gift money to a VA buyer. 

If you are thinking about using gift money to buy a home, make sure you speak with your lender about their gift rules before applying for a loan.

 

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Creating generational wealth, one home at a time. If you are thinking of buying a home,  did you know I can help you find a home for as little as $1000 of your own money?  Thinking about selling a home in  Maryland give me a call at 410-292-0100 or start your search here and I'll talk about the market conditions and what your home could be worth in today's marketplace if you are thinking of selling.  If you are considering buying a home, there is no better time than now to buy. The tax savings and wealth building alone are worth the plunge into today's market. Coldwell Banker and I are connected with some of the world's brightest and best real estate agents and can assist with your move here to Maryland or anywhere in the United States or abroad.  Ask me how.

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June Piper-Brandon ~ Associate Broker ~ MRP, AHWD, CDPE, ePro

Coldwell Banker

410-292-0100 - Direct   410-461-7600 Office

June Piper Brandon - Agent with Century 21 New Millennium

June Piper Brandon - Agent with Century 21 New Millennium

Comments(3)

Laura Cerrano
Feng Shui Manhattan Long Island - Locust Valley, NY
Certified Feng Shui Expert, Speaker & Researcher

I knew almost none of this, so I’m very much more educated now. So thank you for that  sincerely!!!

Feb 29, 2024 10:58 PM
Richard Weeks
Dallas, TX
REALTOR®, Broker
Great information, thanks for sharing.  I hope you have a great day.
Mar 01, 2024 02:55 AM
Wayne Martin
Wayne M Martin - Chicago, IL
Real Estate Broker - Retired

Good morning June. Great post the should be read by all. It outlines the points that need be covered to avoid problems. Enjoy your day.

Mar 01, 2024 04:22 AM