Refinance Mortgage Tips Down Payment With Gift Letter

Refinance & Mortgage Tips: Down Payment With Gift Letter
If you​ are a​ first time home buyer who has been out shopping for that dream house,​ you’ve probably already heard your real estate agent or​ property developer’s first question: How much will you​ be putting down? If you​ have excellent credit,​ several years of​ consistent income on​ record and a​ relatively long history of​ using credit wisely,​ you​ may qualify for 100% financing,​ often referred to​ as​ a​ No Money Down Mortgage or​ Zero Down Home Loan .​
But for the​ majority of​ new borrowers,​ a​ down payment is​ a​ prerequisite to​ buying a​ house,​ and finding 20% to​ 30% or​ more of​ the​ purchase price of​ a​ house can very often entail getting the​ money from family or​ friends .​
Getting that much money together can be tricky enough,​ however lenders will also require that every dollar used for a​ down payment be documented back to​ a​ specific funding source,​ and this can be particularly difficult when the​ money comes from a​ third party,​ which is​ why we have Gift Letters.
Newlyweds and young people generally have neither sufficient credit history nor income consistency to​ qualify for 100% financing,​ and are also the​ least likely to​ have sufficient savings and acceptable documentable assets to​ actually come up with the​ cash to​ make the​ down payment .​
Members of​ the​ family are in​ some ways the​ best and very often the​ only available source of​ down payment assistance available to​ green borrowers .​
Your lender generally will only allow you​ to​ use money given to​ you​ by a​ true family member,​ i.e .​
your mother,​ father,​ brother,​ sister,​ uncle,​ aunt,​ grandfather,​ grandmother,​ first cousin,​ etc .​
This means that you​ cannot use funds given to​ you​ by people who are really not family members,​ for example your friends or​ colleagues,​ however you​ may be able to​ use funds from a​ non-family third party if​ you​ can provide documentation of​ a​ very close and long lasting relationship .​
This is​ done primarily to​ prevent people from taking out personal loans which will have to​ be repaid to​ come up with their down payment,​ which have the​ potential to​ throw off the​ person’s debt to​ income ratio,​ or​ DTI .​
Basically,​ they don’t want you​ to​ take on​ more debt than they believe you​ can safely repay,​ otherwise they would have qualified you​ for 100% financing.
If you​ find yourself in​ a​ situation where you​ need to​ get money from your folks or​ other family to​ make a​ down payment on​ your new house,​ you​ will be required to​ prove that you​ did not borrow the​ money from them with an​ expectation on​ their part that it​ be repaid or​ with an​ intention on​ your part to​ repay it .​
In fact,​ both you​ and your family will need to​ prove to​ your lender that the​ money was given to​ you,​ in​ the​ form of​ a​ Gift .​
To verify that the​ funds are in​ fact given freely,​ your lender will require special documentation .​
If you​ are applying for a​ new mortgage,​ you​ should receive as​ part of​ your loan application package a​ special form called a​ Gift Letter .​
The goal of​ this letter is​ to​ identify the​ source of​ the​ funds and assure the​ lender that they are in​ fact a​ gift .​
Typically,​ a​ gift letter will include the​ name of​ donor,​ the​ name of​ the​ recipient,​ the​ relationship between the​ two parties,​ the​ amount of​ the​ gift,​ the​ address of​ the​ property for which the​ gift is​ to​ be used to​ pay for,​ the​ fact that no repayment is​ required or​ expected,​ and an​ assurance that the​ person making the​ gift or​ the​ source of​ funds is​ not in​ nay way party or​ beneficiary to​ the​ transaction,​ e.g .​
not the​ broker,​ seller,​ agent,​ loan officer,​ builder and so on​ .​
In most cases the​ person giving the​ gift will be required to​ document where the​ money came from,​ such as​ a​ bank account or​ a​ brokerage account .​
If you​ are depositing the​ funds directly into escrow,​ or​ even if​ they are going into your bank account,​ take some precautions to​ document the​ transfer by keeping copies of​ the​ checks or​ deposit tickets/receipts from the​ bank/escrow agent.

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