Gift money loophole? (insurance, loan officer, approval, foreclosure)
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My husband and I have been looking to buy a house/condex for years, and now we can definitely afford it. My parents are gifting us money for the down payment. We do have some money of our own to put down, but most of it will be through them.
Well, we tried to get preapproved for a traditional mortgage (non-FHA) and we were denied because we did not have enough of our own money saved for the down payment.
My question is, I was looking around about info on gift money, and stumbled across this:
Mortgage Broker Mistakes
Lenders want to know where you got your down payment money. You may think to yourself, "I'm putting 10% down, why in the world do they care where I got the money?" The reason they care is because foreclosure rates are much lower on borrowers who earned the down payment money themselves. That means that lenders want to know where your down payment money came from. Did you earn it yourself, or did Dear Ole Dad or Aunt Margaret give it to you?
There is sort of a loophole in this whole down-payment-gift-thing. Lenders want to see that the down payment money has been in your account for at least 90 days. You prove this by showing bank statements. If the money has been in your possession for at least 90 days, they assume that you earned it. If the money just showed up in your account one week ago, the lender assumes that someone "gave" you the money for your down payment.
Is this true? If so, my parents could give me the money and I could deposit it into my account asap.
If not, is there any other way to get around this? We would go the FHA route, but we want to look at condexes, and those are NOT approved by FHA.
My husband and I have been looking to buy a house/condex for years, and now we can definitely afford it. My parents are gifting us money for the down payment. We do have some money of our own to put down, but most of it will be through them.
Well, we tried to get preapproved for a traditional mortgage (non-FHA) and we were denied because we did not have enough of our own money saved for the down payment.
My question is, I was looking around about info on gift money, and stumbled across this:
Is this true? If so, my parents could give me the money and I could deposit it into my account asap.
If not, is there any other way to get around this? We would go the FHA route, but we want to look at condexes, and those are NOT approved by FHA.
Governmental agencies (Freddie Mac/Fannie Mae) require that lenders "source" the money for down payment and closing costs.
For Conventional loans, you must have at least 5% of your own funds for down payment and the rest can be gifted. Also, if you plan to put down 20%, the entire amount can be gifted in most cases. It must however be a family member or a person closely related somehow. (e.g long time friends, fiancee, etc.)
For FHA loans, your entire down payment can be gifted from a family member.
Most lenders require that your money be seasoned for 60-90 days, as the article pointed out. If they see a large deposit, they will need it to be sourced. This is to rule out money laundering, etc.
If your family member gifts you money, the lender will want you to show the donor's ability to gift the money to you. This sometimes means they want to see the "donor's" bank statements to make sure they didn't have that money under a mattress or buried in their back yard. In addition, a gift letter will need to be signed by the donor stating that they understand that the money is a gift and is not a loan to you.
If you deposit this money and it sits in your account for 60 days prior to application, you have nothing to worry about.
If it's deposited after application, you will need to provide "gift" documentation. (i.e. gift letter, proof of transfer into your acct, proof of withdrawal from donors acct, etc.)
My advice is to deposit 60-90 days prior to application. Then later provide 2 months bank statements that do not show the deposit. Then it looks as if it was yours, just as the article stated.
With regard to foreclosure as a result of the borrower not putting their own money down, I agree but I also disagree in some ways. I'm not convinced that gifting causes foreclosure. Lack of budgeting, readiness, job loss, or predatory lending is in fact a contributing factor.
** Also, you may purchase a condo using FHA. It generally has to be an FHA approved condo project. Visit https://entp.hud.gov/idapp/html/condlook.cfm to check for condo approval. If it is not an FHA approved development, many times you can seek a SPOT approval provided the condo association does not have a "first right of refusal" clause in the decs and by laws.
If it is new construction, the association has to have been in control for at least 1 year in order to do a SPOT approval but there still must be no first right of refusal in the decs and by laws, as HUD considers this practice discriminatory.
Governmental agencies (Freddie Mac/Fannie Mae) require that lenders "source" the money for down payment and closing costs.
For Conventional loans, you must have at least 5% of your own funds for down payment and the rest can be gifted. Also, if you plan to put down 20%, the entire amount can be gifted in most cases. It must however be a family member or a person closely related somehow. (e.g long time friends, fiancee, etc.)
For FHA loans, your entire down payment can be gifted from a family member.
Most lenders require that your money be seasoned for 60-90 days, as the article pointed out. If they see a large deposit, they will need it to be sourced. This is to rule out money laundering, etc.
If your family member gifts you money, the lender will want you to show the donor's ability to gift the money to you. This sometimes means they want to see the "donor's" bank statements to make sure they didn't have that money under a mattress or buried in their back yard. In addition, a gift letter will need to be signed by the donor stating that they understand that the money is a gift and is not a loan to you.
If you deposit this money and it sits in your account for 60 days prior to application, you have nothing to worry about.
If it's deposited after application, you will need to provide "gift" documentation. (i.e. gift letter, proof of transfer into your acct, proof of withdrawal from donors acct, etc.)
My advice is to deposit 60-90 days prior to application. Then later provide 2 months bank statements that do not show the deposit. Then it looks as if it was yours, just as the article stated.
With regard to foreclosure as a result of the borrower not putting their own money down, I agree but I also disagree in some ways. I'm not convinced that gifting causes foreclosure. Lack of budgeting, readiness, job loss, or predatory lending is in fact a contributing factor.
** Also, you may purchase a condo using FHA. It generally has to be an FHA approved condo project. Visit [URL="http://www.hud.gov"]www.hud.gov[/URL] to check for condo approval. If it is not an FHA approved development, many times you can seek a SPOT approval provided the condo association does not have a "first right of refusal" clause in the decs and by laws.
If it is new construction, the association has to have been in control for at least 1 year in order to do a SPOT approval but there still must be no first right of refusal in the decs and by laws, as HUD considers this practice discriminatory.
[url=http://www.cooperator.com/articles/1655/1/What-Your-Board-Should-Know/Page1.html]What Your Board Should Know[/url]
Problem with showing Donor Bank Statements on Gift Funds is there are not guidelines (FHA, VA or HUD) that require these documents. Only a signed gift letter from the Donor and Borrower. My problem is that my Donor does not want to show his bank statements due to privacy issues.
Problem with showing Donor Bank Statements on Gift Funds is there are not guidelines (FHA, VA or HUD) that require these documents. Only a signed gift letter from the Donor and Borrower. My problem is that my Donor does not want to show his bank statements due to privacy issues.
For a FHA loan the gift funds must be sourced (i.e. a bank statement is required from the donor). If your donor is concerned about you seeing it, he could send it direct to the lender. If he is concerned about anyone seeing it, then it is going to be a problem.
There are a couple of Banks out there that will allow a 20% gift as the down payment along with a 5% 2nd mortgage. So, yes, I've seen a 100k gift on a 450k purchase price. Good credit is needed and of course they qualified with good income - they just couldn't come up with the down...
There are a couple of Banks out there that will allow a 20% gift as the down payment along with a 5% 2nd mortgage. So, yes, I've seen a 100k gift on a 450k purchase price. Good credit is needed and of course they qualified with good income - they just couldn't come up with the down...
This is a 2 year old thread with circumstances that have grossly changed. Fannie no longer requires the occupant owner to have any of their own funds, however, the mortgage insurance companies do require the occupant buyer have 3% off their own money........but if there's 20% down, it can be all gift.
The absolute best course of action is for anyone to consult a loan officer in their local jurisdiction.
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