When it is time to buy a home, you might find that you do not have an adequate amount of money for the down payment. This could be true if you are trying to obtain a certain interest rate or if you are trying to qualify for a specific program that is backed by Fannie Mae or Freddie Mac. For many of these programs, if you do not put enough money down on the home, you are restricted to higher interest rates and have a tougher chance at getting into the mortgage program that you desire. If this is the case, you might be able to accept a “gift” or cash used towards your down payment. But, you should know that there is a right and wrong way to accept this gift, which could determine whether or not you get the mortgage you need.
Watch your Bank Account
What would seem the most obvious is to deposit the cash gift that you received directly into your bank account without a second thought. This action could get you into trouble though. Before you go and throw the money into the bank, you need to document where it came from originally. A large sum of money suddenly showing up in your bank account unexplained and definitely not tied into your income will look fishy to lenders and force them to deny your loan.
Write a Gift Letter
The first step to documenting a cash gift for a mortgage is to fill out a gift letter. These letters are very basic and should only include the following information: the amount of money that the person is providing you with; how you are related to the person providing the gift and the property address that the gift is meant to help you purchase. In addition, there needs to be a statement included in the letter that ensures the bank that the gift is truly a gift and will not need to be paid back in the future.
Keeping a Paper Trail
Perhaps the most important step in accepting a gift for a mortgage down payment is to keep a proper paper trail. The lender needs to know not only who you got the money from, but where that person obtained the money from. The paper trail should start where the money originates and follow its path very closely until it reaches your bank account. The more paperwork that the person providing the gift for you has, the easier it will be to get the loan approved. Every step that is involved in the process of getting you the funds needs to be documented with a receipt. In addition, any money that exchanges hands between the two of you should be in the form of a check as it is able to be tracked well, should any questions arise in the future.
Keep your Down Payment Money Separate
When you accept a cash gift, make sure that you deposit the money in the account that the rest of the money that you will bring to closing will come from. Every time that you make a deposit or withdrawal in regards to the gift in question, make sure that it is documented well and that it does not take place with any other transaction. The lender will need to document every penny that you are accepting from another person in order to purchase your home. If there is ever any question, the lender is more likely to cancel your loan than try to work with you.
Cash gift donations are a great way to obtain the down payment that you need to qualify for a loan. Because the process is very tedious and time consuming, it is best to walk through every step very carefully, documenting every little thing that your money goes through. The lender will need to know everything in order to allow the gift money to be used on the purchase of your home.Click to See the Latest Mortgage Rates»