Down Payment gifts are quite a natural trend among the home buyers. These home buyers can be either first tome, or these can even be recurrent home buyers. There are several down payment assistance programs meant for the home buyers who are other otherwise cleared for the home loan, but do not have the capability to make the down payments as well as closing costs for making the purchase complete. Statistics have clearly shown that Move–up Buyers as well as Home Buyers having Jumbo Loans running on them go for the cash gifts as closing costs. It is not easy to buy the home. Just get in the wrong direction, and watch the bank authorities plainly turning down the mortgage loan in an underwriting.
In the event where the mortgage loans were disbursed between 2005 and 2009, default rate of interests on low-down payment loans where “Downpayment Gifts” were included, showed an increase than low-down payment loans where “Downpayment Gifts” were not involved. However, in the current scenario, many banks are asking the home buyers to show their funds before they ask for closing.
What is the amount of DownPayment which can be asked as gift? The amount taken as gift for making Down Payments by the home buyer doesn’t cross the overwhelming mark. US Federal government has come up with several beneficial loan programs. The percentage of DownPayment requirements remain well within control as given below:
FHA Mortgage: Minimum 3.5% down payment
VA Home Loan: 0% down payment
USDA Rural Mortgage Program: 0% down payment
Fannie Mae HomePath: 3% down payment
There are plenty of options available in the category of low- and no-down payment mortgages. However, several home buyers prefer the conventional loans awarded through the means of Fannie Mae and Freddie Mac.
A conventional loan is categorized by the very size of mortgage loan as well as the amount of down payment. In general, the size of mortgage loan is set around $417,000 or even less excluding the high-cost areas like Palo Alto, California and Hawaii where the size of loan can swell to $625,500 and above all, down payments seem to be typically 10% or higher. The reason why conventional mortgage home loans have shown an increase in the popularity charts is because of three prominent reasons. The first reason is that conventional mortgages offer ideal combination of low mortgage rates, second reason is that these loans provide low closing costs and the third reason is many of these loan have no mortgage insurance. With conventional mortgages, the situation where mortgage loans are below 20% down rate of interest, the insurance will become quite cheaper for the home buyer, rather than opting for FHA loan.
During the time of acceptance of down payment gifts, make sure that you follow ethical way. There are good and bad ways of taking the gifts, and therefore, you need to make a well balanced and informed choice.
When you receive a gift for a down payment to buy the home, you should follow the stringent 3-step process. Fannie Mae, Freddie Mac, FHA, VA, or the USDA – all of them take into account same process.
- The first step involves writing the mortgage Downpayment gift letter, which should include the relevant information such as total gift amount, property address of subject, the association of the donor to the borrower and the promissory note that the gift is actually a gift and not a loan.
- The second step involves adherence to Mortgage Downpayment Gift Guidelines. You have to be sure that no rules and regulations have been violated while accepting the gift from donor. It is important for the donor to keep the track of the source and funding of the money being gifted.
- The third step is preparing the check of the amount as made known in the gift letter. Take a photocopy of check for your record purpose, and provide another copy to the donor. Make sure that you do not wire the funds as it is easy to keep the track the checks.
Keep Record of Tax Notes on Gifts for Downpayment
Keep in your mind that you cannot evade the federal taxes, irrespective of the fact whether you are donor or recipient of cash gift for down payment. There are legal liabilities associated with it too. Check with your tax preparer or CPA and find the latest rules in gifts for down payment.
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