It’s a gift not a loan!
THIS ARTICLE WAS PROVIDED BY THE FLORIDA REALTOR ASSOCIATION. GREAT EXPLANATION OF THE LAW
CHICAGO – Dec. 2, 2016 – Many first-time homebuyers receive down payment assistance from a family member or close friend, but many don’t realize there are specific guidelines they must follow for a home purchase to avoid trouble down the road.
First off, the down payment must be a gift. If it’s considered a loan, the lender must then factor that into the mortgage approval amount, and buyers may then qualify for less mortgage money than they need.
Buyers need a gift letter from the person or persons who gave them the money. The person who gifted the money must state in writing that he or she does not plan on asking for the money back, and that it is, indeed, an actual gift.
“The gift letter is very serious,” says Casey Fleming, mortgage adviser and author of The Loan Guide: How to Get the Best Possible Mortgage. “While it is doubtful that a lender would ever audit a file after the fact to see if the recipient is paying the donor back, if the transaction goes bad, you might very well find yourself with a subpoena in your hand.” Remember, you cannot lie on a mortgage application. It’s a felony.
The person giving the gift may also be required to provide bank statements – possibly two months’ worth.
Buyers should also secure the down payment, including any gift portion, during the early planning stages of a house hunt to save them from unexpected delays later on.
“If the funds are ‘seasoned’ – meaning that they’ve been in the account long enough so that the last two bank statements don’t show the deposit – the gift does not have to be addressed,” Fleming says.
Also, there is a limit to how much a buyer can be gifted tax-free, according to IRS rules. Any gift of $14,000 and up will face a tax bill under current guidelines.
That said, “it is $14,000 per year per donor, so a couple could give $28,000 ($14,000 from each) to their child,” Fleming explains.
Source: “Getting a Down Payment as a Gift? Avoid the Mistakes That Could Mess You Up,” realtor.com® (Nov. 28, 2016)
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