How To Use A Gift For Your Mortgage

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Suburban HomeA lot of you may have gotten married this summer.  Now, you’re thinking it’s time to buy a house!  It’s the ultimate sense of putting down roots, and getting yourself settled down.  A lot of people have trouble getting their down payment together, though.  It’s ok!  There are a lot of loan programs that are available to help you move into your dream home without having to put down 20%.  Sometimes, people are able to get a gift to help them on their way to home ownership.

That’s what we want to go over here.  Using a gift for your mortgage payment is great, and is perfectly OK to use as your down payment.  The lender is just going to have some questions where this big stack of money came from.  To understand why they need to know, you need to have a little background on underwriting.

Underwriting is just the process by which the lender looks at you and decides if you’re trustworthy enough to lend money to. They need to check that the money in your account is all YOUR money and not loans, but gifts from your friends and family. They have to know that you can actually make your mortgage payment and that you will pay the loan back.  An Underwriter needs to verify that this isn’t a loan that’s going to cause you trouble down the road.  That’s where a Gift Letter comes into the picture.

Gift Letters

If you are receiving a Gift as part of your down payment, you have to get a gift letter from the gifter that contains all of the following information:

  • The donor’s name, address and phone number
  • The donor’s relationship to the client
  • The dollar amount of the gift
  • The date the funds were transferred
  • A statement from the donor that no repayment is expected
  • The donor’s signature
  • The address of the property being purchased
  • Gift Money and Your Loan Type

The gift status also comes with some caveats on percentages.  You can only use the gift for so much of the down payment, depending on the loan program.

Conventional

  • If you put down 20% or more, it can all be from a gift.
  • If you put down less than 20%, part of the money can be a gift, but part must come from your own funds. This minimum contribution varies by loan type.
  • You can only use gift money on primary residences and second homes.

FHA and VA

  • All of your down payment can be gift money.
  • If your credit score is between 580 and 619, at least 3.5% of your down payment must be your own money.
  • You can only use gift money on primary residences.

Make sure that you check with us to determine if these rules have changed or not – they are subject to laws and can change over time.

Basically, the mortgage lender needs to verify the source of any large deposit. What’s a “large deposit”? It’s any single deposit that exceeds 50% of the total monthly qualifying income for conventional, VA and Jumbo loans.  For FHA Loans, it is 25%.

Get Started!

Basically, if you’re getting a large gift to help pay off your down payment, be ready to know exactly where it came from.  If you want to talk more about it, or just have any mortgage questions, call us in St. Louis at 314-781-9400, In Chicago at 773-770-4727, in Indianapolis at 317-550-1515, in Nashville at (615) 810-8555 or anywhere in the United States at 800-991-6494.  You can also apply online at www.thehomeloanexpert.com or follow us on Twitter (@TheHomeLoanEx) to learn all about mortgages and get your mortgage questions answered.  Nobody makes it easier to buy a new home or refinance your current one than The Home Loan Expert, Ryan Kelley.

 

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