One of the most festive aspects of the holiday season happens to be perfect for…
For first time home buyers here in the Greater Austin area, they might find themselves in somewhat of a state of sticker shock. Home values are still on the rise and this can keep some out of the home they really want as home values continue to rise with no sign of a letup. Still, buying a home and financing it with today’s mortgage rates still makes sense for most but for some the obstacle is less the price of the home but coming up with enough funds for a down payment and closing costs. Lenders are required by lending guidelines to determine via third party the borrowers have enough of their own funds to close on the purchase, typically by reviewing the most recent bank statements showing sufficient funds to close. When there is a shortage, the buyers simply have to wait. Or, they may instead receive a financial gift from a qualified source to make up for the shortfall.
A financial gift can be used to offset the required amount of cash needed to close but must come from an acceptable source. These sources include a blood relative such as a parent, sibling, uncle or grandparent for instance. Or, someone who is considered as a close friend who, according to Fannie Mae, has a “clearly defined and documented interest in the borrower.” A spouse can give a gift as well as a domestic partner. And what’s more, and perhaps most importantly, the buyer’s entire down payment and closing costs can be from a financial gift.
A gift to buy a home is in fact just that- a gift. It is not a loan and the donors do not expect to get the money paid back later. There is some paperwork involved when a donor provides a financial gift to a buyer that includes a Gift Affidavit letter, bank statements and deposit tracking. However, to legitimately avoid this sometimes cumbersome paperwork, the donor can wire the needed funds directly to the escrow officer’s bank account. The escrow agent will then show the gift funds on the final settlement statement to document the gift transfer without having to go through a paper trail.
If you or know someone who expects to get a financial gift in order to help facilitate the purchase of a home, you do need to know in advance the funds just can’t suddenly show up in a bank account without letting the lender know you do expect to get a gift, from who and for about how much. Without such notice to the lender, you will have a bit more paperwork to do. Check with us about the details involved when gifted funds are part of the transaction, we’d love to help!