Gift Money as a Portion of the Down Payment? (insurance, loan, 2013)
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Posted a couple of times but I am hoping to buy a home in late 2012/ early 2013. I will be getting a conventional loan with a 10% down payment. Recently my folks have discussed possibly gifting me some money towards the down payment.
However I have heard that banks prefer you save up the down payment and that you can only have a certain percentage gifted. Is this true? If so what percentage can be gifted and what must be your own savings? Is their a max amount they can gift?
Depends on the bank. If the "gift" is too large, you will also have to claim it as income and pay taxes on it. A bank isnt going to let you accept a gift and not pay taxes on it. They will want to know you have enough left over to pay uncle sam without defaulting on their loan.
Posted a couple of times but I am hoping to buy a home in late 2012/ early 2013. I will be getting a conventional loan with a 10% down payment. Recently my folks have discussed possibly gifting me some money towards the down payment.
However I have heard that banks prefer you save up the down payment and that you can only have a certain percentage gifted. Is this true? If so what percentage can be gifted and what must be your own savings? Is their a max amount they can gift?
Thanks!
This can get confusing, so speak up if you still have questions.
Recently (okay, late 2009 or 2010) Fannie removed the requirement for the borrower to have at least 5% of their own funds in a Desktop Underwriting update. However, mortgage insurance companies, have not. So, mom and dad can give you a gift of any amount, but you will have to find a way to avoid MI if you don't have your own 5%. That can be done with 20% down, or better yet, an 80/10/10, meaning an 80% first trust with a lender that offers Fannie retained (also called, "direct) financing, a 10% second and 10% down. The second trust lender would also have to allow a gift for the down payment.
Not everyone offers Fannie Direct, but they do work with investors that sell to Fannie Mae. These investors (Wells, Chase, Franklin American) have their own requirements (called overlays). So if you do go with a gift, you will need to ask questions up front if that is an issue, preferrably before anyone pulls your credit.
Sorry, but this is exactly why you can call 4 different lenders and get 4 different answers.
The easy answer is get the money now. You're not buying for a year. Banks only ask for your past 2 months bank statements. As long as the deposit of any money is put into the account prior to that time, they don't know where the money came from and it's none of their business. It's not loan fraud or anything. It's called "seasoning" the funds. It also helps prevent paperwork from your parents. Otherwise, your parents will have to sign a gift letter and also show their bank statements showing the money came from their accounts. Many parents don't think it's anyone's business what they have in their accounts, so getting the money prior to 2 months is the best option.
The easy answer is get the money now. You're not buying for a year. Banks only ask for your past 2 months bank statements. As long as the deposit of any money is put into the account prior to that time, they don't know where the money came from and it's none of their business. It's not loan fraud or anything. It's called "seasoning" the funds. It also helps prevent paperwork from your parents. Otherwise, your parents will have to sign a gift letter and also show their bank statements showing the money came from their accounts. Many parents don't think it's anyone's business what they have in their accounts, so getting the money prior to 2 months is the best option.
Dead on.....and better yet, since many parents don't feel comfortable just handing over thousands of dollars without a purchase lined up, open up an account joint with mom or dad, with you as the primary, and let that sit for a few months. Then, all mom or dad has to do is write a letter that the joint account is yours, to do as you like. This may provide a feeling of control for the parents, without an invasion of privacy.
Great thanks everyone for the good advice! I may suggest that they give me the money maybe mid-year. But I do have another question, what if they wanted to pay for the closing costs instead of contributing to my down-payment- would this be an issue with the bank?
Dead on.....and better yet, since many parents don't feel comfortable just handing over thousands of dollars without a purchase lined up, open up an account joint with mom or dad, with you as the primary, and let that sit for a few months. Then, all mom or dad has to do is write a letter that the joint account is yours, to do as you like. This may provide a feeling of control for the parents, without an invasion of privacy.
and if they gift up to $12,000 each before 12/31 (hurry!)...
then they can gift up to another $12,000 each next year too
(all tax free)
The easy answer is get the money now. You're not buying for a year. Banks only ask for your past 2 months bank statements. As long as the deposit of any money is put into the account prior to that time, they don't know where the money came from and it's none of their business. It's not loan fraud or anything. It's called "seasoning" the funds.
that ^
Certain ones, though, might ask for 3 months... but not more then that. Bingo!
what if they wanted to pay for the closing costs instead of contributing to my down-payment- would this be an issue with the bank?
Why would you think the previous answer doesn't apply here too? Money from parents is money from parents. It's a gift if not seasoned. If you don't have the required down payment and someone else has to pay it, you have to supply more paperwork of a gift letter and everything else already mentioned.
OK great I wasn't sure if the down-payment could be from a separate account, basically my parents write a check to the bank during the closing. I think I will talk to them about the amount the anticipate gifting me, I would say it probably won't be more than $10k so I shouldn't have to worry about splitting it up between multiple years for tax reasons.
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