Mortgage question (Charlotte, Faith: real estate, refinance, loan) - City-Data Forum

FLtoNC · 01-21-2007, 11:24 AM

Has anyone recently applied for a mortgage in which the lender required them to have a gift letter signed to qualify them for money that wasn't actually a gift from anyone? My lender wants us to say that a large sum of money we are putting down on a home is a gift from a family member, which is not true. I am worried about any tax implications this may have for us or for the people who will be stating they are giving us money when in fact they are not. Is this a general practice and is this something that is reported to the IRS or is it likely more an internal thing with the mortgage company?

NCHomeFinder · 01-21-2007, 11:34 AM

Where did the money actually come from? I personally think that any mortgage lender who asks you to "fudge" is probably willing to cut corners in other areas as well.

(Personal experience buying investment property a few years back: Lender tried to get us to call it a second home to cut the interest rate, and make the paperwork easier. We wouldn't. He then needed a gift letter for funds, which we got, and then told us oops, you can't use gift letters for investment property, so we had to scramble to show we had the money in other accounts, even though we weren't using those actual funds. Then at the closing table, there were points on our loan that were not on the Good Faith Estimate, and we nearly lost the house because I wouldn't sign for the loan with points. Now I have personal relationships with local lenders that I trust, instead of shopping a loan online. Never again, *shudder*. The first time he asked us to lie about the home should have been when we walked away from this guy.)

That said, there may be issues with the funds being "seasoned" - not in your accounts long enough. We've had issues buying property with stock option money where we had to produce a paper trail showing we had the funds for a certain amount of time. If you suddenly came in to money somehow, you may need proof of where it came from, and a gift letter is the "easiest" way to do that.

What reason is your lender giving you for needing a falsified gift letter, anyway?

Swimmom32 · 01-21-2007, 11:36 AM

I would contact the IRS...usually if they cant verify were the money came from they will ask u for a gift letter...however you should double check because that is something that they will look into...the banks that is...if u can prove where the money came from then your ok, also check because capital gains may apply..if your in a house less than 18 months or you make more than a certain amt on a profit....

chaz longue · 01-21-2007, 11:42 AM

My advice?

Ask the Real Estate Attorney who's doing your title work.
If an escrow/title company is doing things for you, ask them to recommend a REAL ESTATE attorney - somebody who assists with Real Estate transactions day in and day out.

Swimmom32 · 01-21-2007, 11:51 AM

Yep good advice

I would be careful like the other poster said there are ALOT of mortgage company's that are umm unethical, my dh was in the business or a short time needless to say why...anyway, shop around as well

Staci

FLtoNC · 01-21-2007, 05:19 PM

(Personal experience buying investment property a few years back: Lender tried to get us to call it a second home to cut the interest rate, and make the paperwork easier. We wouldn't. He then needed a gift letter for funds, which we got, and then told us oops, you can't use gift letters for investment property, so we had to scramble to show we had the money in other accounts, even though we weren't using those actual funds. Then at the closing table, there were points on our loan that were not on the Good Faith Estimate, and we nearly lost the house because I wouldn't sign for the loan with points.

What reason is your lender giving you for needing a falsified gift letter, anyway?[/quote]

Very similar situation with us. We are having to count this home as our 2nd home as we haven't sold our FL home yet like we had hoped to. The money we are putting down on our NC home is partially coming from a HELOC on our FL home. We were told that we would have a higher interest rate if the underwriter knew the source of those funds. So, they are asking us for this "gift letter." I need answers fast as to what, if any, tax implications this will have on us or the people who will be claiming to give us this money.

CharlotteAgent · 01-21-2007, 05:56 PM

This is not advice on my part but just the way I understand it.

Someone such as a parent is allowed to "gift" you money to purchase a home. This is normally used if you all of a sudden had money in the bank.

This money could have been from a 401K loan etc. This money has to mature in you account for X number of days/months before you lender is allowed to move on without question. The "gift" part helps the internal process with the companies policy to have the money mature.

*Disclaimer* This is just one persons view of how this works. Please consult a tax advisor as far as IRS standards.

NCHomeFinder · 01-21-2007, 06:09 PM

By leveraging one home to buy another, you are increasing the risk to the lender that you will default. Hiding this fact from the underwriter to get a more favorable rate may be considered fraud, so I would agree with one pp that you consult a real estate attorney.

I don't believe there would be tax implications, unless the amount you are "borrowing" is more than $12,000 from a single person or $24,000 from a couple, written as two separate checks. If it is more, THEY would be the ones with a tax burden. (See your financial planner or CPA for the details.)

We were able to show that we had funds in other accounts equal to the amount that we were using, although we used gift money instead because we didn't want to liquidate our investments. If you have investment accounts or other assets, you may be able to show proof of funds without the gift letter, and still be above board with your underwriter.

Or, take the higher rate. There are whispers that rates will drop later this year, and if they do, you can refinance at that time, after your FL house has sold.

I would be very cautious with a loan officer who is trying to do things the easy way, make sure you read your loan documents carefully at the closing table regardless of which option you choose. Try to get copies of your HUD-1 and loan docs a couple days prior to closing if possible to review them. (They are supposed to do this, but often the docs come in at the last minute.) Also, bring copies of your Good Faith Estimate and any other communication from your lender to compare with what you actually get. Ask questions. Try to have your closing is early in the day, so that if there are any discrepancies, the loan officer will be available to fix any problems and fax any corrections so you don't have to delay your closing.

Good luck! Buying a home is stressful enough without these complications. If you are having trouble with the lender, your realtor may be able to intervene and ask the right questions to get this resolved.

NCHomeFinder · 01-21-2007, 06:19 PM

Quote:

Originally Posted by CharlotteAgent

This money could have been from a 401K loan etc. This money has to mature in you account for X number of days/months before you lender is allowed to move on without question. The "gift" part helps the internal process with the companies policy to have the money mature.

If you borrow money from your own accounts, you only need to show the paper trail that the money was yours for the period of time they require. We were liquidating several accounts, and combining it all just weeks before our closing, including stock options, but we were able to show the funds were in our possession in one form or another.

Be very careful falsifying the gift letter, especially if it is a substantial amount, for the reason I stated above. It may be the easiest way to season the funds, but your loved ones could end up paying a gift tax.

(The reason for the $12,000/$24,000 limit is that the IRS only allows you to give away this amount each year. This prevents people who are very wealthy from giving away the bulk of their estates to their heirs without paying "death taxes" when they die.) I'm not a tax attorney, and I'm not in the habit of giving or receiving gifts in these amounts... double check those limits with your CPA!