Realtor Tip of the Week: Your Guide to Gifts Funds Used for Purchases

Almost all loan programs allow a gift to be used as down payment and closing costs, and people always have questions about gifts. Here are some FAQs:

 

• What constitutes a gift?
• As the name implies, if someone gifts money to a buyer, they don’t expect to be repaid. In fact, the gifter and your buyer will both be signing a document stating such.
• Who can give a gift?
• The rule of thumb for government and conventional loans is a family member or someone who has a significant part of the borrower’s life (i.e. fiancé, partner, etc)
• What if the gifter wants to be repaid?
• The gifter is signing a document stating they do not expect to be repaid.
• Well, can the gifter loan the money, then?
• At that point, it’s not a gift, it is a loan, and that loan would have to fit in with the program’s parameters.
• What documentation does the gifter need to supply?
• 95% of the time, they don’t have to supply anything since funds can be wired directly to the title company. If the gifter transfers funds to the buyer before or during the transaction process, lenders require 60 days of the gifter’s bank statements that will be used for the gift. Important: if the gift letter says the funds will be sent from Chase checking account #1234, then they need to supply the statements from account #1234.
• What if the gifter doesn’t want to supply any documents?
• They will need to wire the funds directly to title or the borrower will need to find another source for funds.
• How much can the gift be?
• For however much the buyer needs. I’ve seen one for $250K. One important caveat: if the lender requires ‘reserves’, gift money cannot count towards the reserve requirements.
• Isn’t there gift tax?
• I’m not a CPA nor the IRS, so the gifter and buyer will need to research this. Any tax should be applicable to the gifter.
• What programs do not allow a gift?
• Under conventional guidelines, gift funds cannot be applied towards the purchase of investment properties.
• Can you accept a gift of equity?
• Yes! this would be for a primary purchase only. Example: Buyer’s dad owns a rental home. It’s valued at $300K. Buyer needs a 90% loan, so $30K. Dad sells the house for $300K and you list $30K gift in the in comments area. If towards closing costs, you list in paragraph 12. You can also split those out.

 

 

Feel free to pass this along!

 

Thanks!
Joel

 

 

Joel Richardson​​​​ SVP ‑ Central Texas Mortgage Manager, Austin VeraBank, N.A. P: 512-222-0140   EXT. 7740  |  877-566-2621  M: 512-203-8244 E: jrichardson@verabank.com  |  W: myfinanceteam.com A: 1111 W. 6th Street, Bldg B, Suite 200 ,  Austin ,  Texas   78703 NMLS # 136881