The holidays are over. For lenders however, gift giving is on their mind all year long. This is because many loan programs allow some or all of the down payment to come as a gift from a family member.
An FHA loan, which is available to everyone and not just for first time homebuyers, has a down payment requirement of only 3.5% of the purchase price and all of this can be a gift. Conventional lenders will allow some or all of the down payment to be a gift from a family member.
There are a bunch of rules to follow if a homebuyer is going to get down payment money as a gift. There needs to be a letter from the giver of the gift and it must cover certain, specific topics.
Also, there needs to be a well-documented paper trail that shows the money in the giver’s account and shows how it gets transferred to the homebuyer’s account. A buyer will want to get a list of exact requirements from his or her lender and then follow the procedures carefully.
Another factor in giving and receiving a gift for down payment is potential tax consequences. It many cases there will be no tax impact at all for either party.
However, we are talking about the IRS here and so the rules can get pretty convoluted. You know how things can go: “If the amount on Line 15 exceeds the amount on Line 14, then say the alphabet backwards and pick the number you like best, and…”
Seriously, though, it is good to check with a trusted accountant to make sure you proceed properly and don’t create an unintentional tax liability.
Having sufficient money for the down payment is often the biggest obstacle to home ownership. Getting a gift from a family member is just one way of getting over this hurdle. It can often be combined with other strategies to accumulate sufficient funds.
Don’t let lack of cash be an obstacle for you. Contact a lender and explore all the possibilities. If you need, I can refer you to a good one.