Gifts are great aren’t they? As the holiday season approaches, the spirit of giving is in the air. Gift giving reinforces appreciation between people. The recipient feels grateful and the giver gets to feel a sense of satisfaction and fulfillment – especially when the gift fits the person set to receive it. Why am I talking about gifts when I’m supposed to be discussing mortgages? Well, gifts can be used in conjunction with mortgage loans. These types of gifts deal specifically with money and/or equity used to purchase a home.
In a post earlier this year I mentioned that credit is loosening up a bit as evidenced by the return of some low down payment options for buyers. Those are great options to either help keep money in a buyer’s pockets or to help encourage more buyers to enter the real estate market. However, if a buyer is borrowing money using conforming or FHA financing, there is still some type of down payment required.
I think it’s widely accepted that most buyers know they will need some money to put down at the closing of a home purchase, but what if they didn’t have to? What if a parent or other family member offered to take care of that cost? Could that saved money go to help decorate the new home, put up a privacy fence, change Formica to granite or buy appliances? I remember buying my first home in Prairie Village and on the day I moved in I realized I had no washing machine to wash clothes. So I had to purchase one and, of course, had to charge it because I used most of my funds saved to put down on the house I just bought.
Gift giving for real estate purchases may be more likely applicable to first-time homebuyers but there certainly isn’t any rule that prevents a seasoned home owner from being able to use a gift on buying a home. The gift just has to be from an acceptable donor on an acceptable property. I’ll explain these and a couple other terms:
- Acceptable donor – a relative defined as the borrower’s spouse, child or other dependent, or by any other individual who is related by blood, marriage, adoption or legal guardianship or a fiancé or domestic partner.
- Acceptable property – must be a primary or a secondary residence and classified as a single or up to four units.
- Acceptable documentation – a gift letter signed by all parties specifying the amount of the funds, the date the funds are to be transferred, addresses of the parties involved and the relationship between borrower and donor.
These gifts can either be an actual gift of money or a donor can gift equity if the borrower is purchasing a property owned by the donor. Recent changes in lending guidelines allow donors to gift any or all of the down payment amount to be applied at closing whereas before this ability was limited. This is another sign that lending guidelines are loosening to attract new buyers of real estate. With attractive rates and abilities to buy with little or no money down, it creates a pretty inviting environment for new buyers or for those who have been sitting on the sidelines for some time.
To learn more about how to use a gift for a down payment, to apply for a home loan or for general information about mortgage loans call Mike at 913.745.7000 or email at [email protected].
This weekly Sponsored Column is written by Fountain Mortgage. Located in Prairie Village, Fountain Mortgage is dedicated to educating, and thus empowering, clients to make the best financial decision possible for their situation.
Contact Fountain today.
Fountain Mortgage NMLS: 1138268
