Not everyone likes to go out and shop for gifts for people but almost everyone loves getting gifts. Some people love getting very thoughtful gifts and some prefer money. This weeks Real Vocabulary topic is a bit more complex than receiving the average everyday gift. The good news is that its not too complicated. There are just a few things you will want to be aware of so that receiving said monies doesn’t affect your chances of getting approved for a loan.
If you are planning to buy a home and your favorite Aunt or Grandparents decide they would just looove to contribute to your future home! Exciting isn't it? But first, you're going to want to stop, collaborate + listen. Number #1: make sure that the funds can be verified. In some cases the Underwriter will ask for bank statements from the donor and potentially yourself again depending on when they were deposited. But thats not all.. Step 2: the mortgage company will also want a gift letter. This seems a little silly but there is a process and a reason for this as well. Below is what Christine Brakel, a writer for Quicken Home Loans, wrote in an informative article that summarizes the gift letter and what is required for most lenders.
A gift letter is a note from the donor that says you don’t have to pay the money back. 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
*Helpful Tip: Many mortgage lenders today require down-payment funds to be sourced and seasoned. Sourcing is essentially identifying where the money came from. Seasoning means that the money has been in the bank for a certain period of time, typically 60 days or more.
Step 3: There are also guidelines and limits with regard to how much money can be gifted tax free. Im no tax expert, but this is important for the donor and yourself to consider when gift money is donated and received. Please make sure to speak with your tax professional to make sure you are up to date on current laws.
The article also mentions that “the amount you can exclude from your taxes between gifts to people and whatever you leave behind in your estate is $11,180,000. Any estates or gifts left below that amount aren’t subject to taxes.
In addition, as of 2018, you can now gift up to $15,000 per year to people without having to report it and count the amount toward your gift tax limit. This is also on a per person basis, so if you wanted to donate $15,000 to each of your grandchildren’s college funds, you could.
Typically, this tax is paid by the donor. If you agree that the recipient will pay the tax, talk to your tax professional.”
Whether you are looking for downpayment assistance or utilizing the yearly gift given to you, know that your lender is going to want more information. Other than that, pretty simple if you ask me. All that is left now is to reach out to me so that we can find you a home!
You can always contact me via email @ firstname.lastname@example.org and I will gladly get you set up with an individualized home search.