And Down Payments
When one receives gift money it is assumed that you get to decide what you spend your newly acquired money on, but when it comes to making a down payment you might find that this is not as easy as it would seem. Whether the total of the money is twenty dollars or twenty thousand dollars the source of the money matters just as much as the money you already own. To understand why this is we need to look at underwriting closer.
The process of underwriting refers to the actions of a lender in examining your credit score, income, and assets to determine how risky lending money to you would be. This means when they are searching through your assets, both solid and liquid, they ascertain what is YOURS. This essential step ensures whether the money you have available will be available every month in order to make the monthly payments. If they money you are using is a gift the lender sees this as a potential risk as that amount of money will not always be available
If you’re using gift money as part or all of your down payment, you’ll need the donor to write a gift letter to your mortgage company that makes it clear that the money is a gift and not a loan. Here’s what your gift letter should include:
- 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
It’s important to understand that the gift letter in itself may not be enough evidence for the mortgage company. If you’re getting an FHA loan, the person who gives you the funds will be required to provide a bank statement in addition to a gift letter – so you’ll probably want to let your generous friend or relative know this upfront.