3 Down Payment Gift-Giving Rules For First Time Homebuyers To Remember When Purchasing A Home...
The National Association of Realtors reports that 27 percent of First-Time Home Buyers received a financial gift from relatives or friends that they applied toward a down payment on a new home last year. This number is up from 22 percent in 2009.
Although down payment gifts have increased, those who receive such gifts need to make sure they follow 3 IRS and banks’ gift giving rules listed below:
1. Home owners still need to come up with at least some of the down payment:
Loans backed by Freddie Mac require that when the loan-to-value is greater than 80 percent for a home loan, the Buyer will need to come up with at least 5 percent of the purchase price from his or her own funds. Fannie Mae loans allow all down payment funds to come as a gift on a one unit principal residence. .
2. You will need to document where the down payment money came from:
A gift letter should be signed and dated and include the giver’s name, address, and telephone number, along with his or her relationship to the borrower.
3. If you’ve had the gift for a long time, you likely won’t need to document it.
If the gift has been in your bank account for three months or longer, it’s considered “seasoned” and doesn’t require a gift letter, however given ever changing lending standards, a Buyer should still have a signed gift letter handy if the lender should ask for it.