Kathy A. Torline-Nordstrom
Cherry Creek Properties, LLC
Serving Colorado Springs
Gifts can help with you down payment
Some statistics show that 25% of first time home buyers receive a gift to help with their down payment or their closing costs.
There are many people who are ready to purchase their first home who have good credit scores, not much debt, steady jobs, but they just don’t have enough money saved for the down payment. One possible solution is to get a gift from a relative, sometimes called “The Bank of Mom and Dad”. The donor must have a family type relationship with the “donee”, and must not be involved in the transaction or benefit from the sale or purchase of the property.
A gift must have no strings attached. It is exactly what the word says, a gift. But even though mom or dad may give you a gift, your lender may still expect you to have some of your money involved in the transaction to help with the down payment. Lenders want to know that you also have contributed to the purchase; and they’ll also want to be assured that the money does not need to be paid back.
Most lenders require a “gift letter” from the person giving the gift, essentially saying that repayment is not expected. They’ll also want proof that the money was transferred from the gift-giver’s account to the borrower’s account. The letter typically needs to include the amount of the gift, and a statement of the relationship to the borrower, and it’s important that there is a paper trail of where the money came from and where it went to. The lenders want to make sure that it’s not a loan that is being disguised as a gift. Your lender can give you more specifics of what else needs to be included in the gift letter.
Also, make sure and have a conversation with a lender before you receive the gift, as different lenders have different requirements for the gift money. As well as it’s important to be current on the IRS tax laws, as gift less than a certain amount are not taxable.