Mortgage down payment assistance in the way of money gifts can be used. Find the best information on how to use these gifts for your mortgage below.
Down payment gifts are one of the most common ways for first time home buyers to get some much needed funds for their down payment.
These gifts are like receiving a stack of hundred dollar bills tied up in a red bow. They are very special!
Down payment gifts are a heavily regulated type of mortgage assistance. The reason is that the lender wants you, as the buyer of the home, to have a stake in the investment of the property.
Some of us would say that the stakes are high enough for the buyer, since the property is full collateral!
But, a lender wants the mentality from the buyer that they have put up something, not just getting help from everyone else plus the bank.
Without regulations on down payment gifts, mortgage assistance could get wildly out of hand.
Those who do the assisting, for instance, may start extorting from those they "help". It could be like loan sharking, charging very high interest rates on the gift. This is why mortgage down payment assistance cannot be another loan. It has to be a "gift".
The gift to you as the buyer can come from immediate family, friends, relatives, non-profit organizations set up for mortgage assistance, or even the seller. In all cases, those helping the buyer have to write and sign a letter stating it is a gift--NOT another loan. The home buyer is under no obligation to pay it back and there cannot be any interest charged.
In the case of the special non-profit organizations, the seller pays them the needed down payment amount plus a small fee. At closing, the non-profit organizations gives the buyer the money minus the small fee.
The majority of those who get mortgage down payment assistance in a gift form usually buy through FHA.
There are rules and regulations that go county to county on these types of loans. Not all people qualify for them. But the people who do only need a 3.5% down payment. This is very low compared to all other safe mortgage options.
If you're wondering why sellers would donate down payment gifts, it is because they get tax credit for a charitable donation. The amount they gifted gets written off on their tax form for that year.
They do this because they are eager to sell and want that property taken off their hands. This way the seller gets a faster sale plus a tax credit.
If you are a first time home buyer, you should receive a "gift letter" included in your mortgage application paperwork. The letter allows the lender to identify where the funds for mortgage down payment assistance come from and, once again, ensure that they are indeed a "gift".
The standard gift letter has you fill in: the names of the gifter and the recipient; the relationship the two of you have; the amount of the gifted funds; the address of the property which you are buying and using the gift for; a legally binding statement that no repayment or interest are demanded or even expected; and, legally binding statements saying that the gifter is in no way beneficiary to the transaction (unless they are the seller of the home--they are benefiting by closing the sale and that is okay). This means they cannot be a mortgage broker, involved loan officer, involved real estate agent, involved home builder, etc.
The gifter must also document where they are getting the money from. For instance, checking account? Stock investment account? And so on. This prevents money laundering.
Down payment gifts are allowed in many circumstances because it is understood that first time home buyers are often young people who have not had the chance, yet, to build up a sizable amount of their own savings. This type of mortgage down payment assistance and other mortgage assistance programs are understandable for these people. Society generally wants people owning their own homes.
Mortgage down payment assistance programs are seen as methods for keeping the economy strong. Down payment assistance programs keep alive the "great American dream" of home ownership. If you cannot afford a down payment on a property, getting down payment gifts can allow you to take part in these goals.
Are you ready to find out if you're eligible for a home loan? Our Best FHA Home Loans page explains the FHA loan programs that are suited for first time home buyers.
Would you like to know what home buying grants are available in your state?
Would you like to know how much you may need for a down payment? Consider playing with our down payment calculator.
Go to House Buyer Solutions Home Page.
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