Can money be gifted for a house down payment?

By Sabrina Karl

With first-time homebuyers often struggling to save a down payment, gift money from their family can be a welcome fix. But simply transferring funds from the Bank of Mom & Dad to Johnny’s bank account won’t alone solve the problem. Both giver and recipient need to follow certain gift money rules.

First, the type of mortgage being applied for, as well as the borrower’s credit score, will determine how much personal investment is required in the down payment vs. how much can come as a gift. For instance, FHA loans have different rules on this than conventional mortgages, so the first step is learning the rules for the particular loan and situation.

Also note that down payment gift money must generally come from a family member, such as a parent, grandparent, aunt or uncle, or a sibling. Gifts from friends are typically not allowed, but contributions from a spouse, domestic partner, or fiancee usually are accepted.

Once the allowable gift amount is determined, be aware that all lenders will ask to see 2-3 months of bank statements. So any large, non-routine deposits that show up during that time period will need to be explained and documented.

Specifically, a gift deposited within that 2-3 month window will need to be confirmed with a gift letter from the donor. Most importantly, this letter establishes the relationship of the giver to the recipient and explicitly states that the money provided is being gifted, not loaned, with no expectation of the donor being paid back.

Gift money can be an excellent way to help new buyers get into their first home a little sooner than they would be able to on their own. The trick is simply doing your homework so both giver and lucky recipient can satisfy the lender’s requirements.

What documents will I need to get a mortgage?

BY Sabrina Karl

Applying for a home loan may be one of the more paper-intensive processes you’ll go through in life. Fortunately, much of what you need you’ll already have on hand or can easily access.

The documents mortgage lenders require generally fall into three categories: those documenting your income, your debts, and your assets. In addition, a variety of miscellaneous documents may be necessary given your situation.

At the top of the list is documentation of your current income, as well as how much you earned the past two years. Lenders will typically want to see your most recent two tax returns.

If you work for an employer, you’ll additionally need to present your latest W-2 form and last two pay stubs, as well as the names and addresses of any other employers over the last two years. Meanwhile, the self-employed will need to provide a year-to-date statement of profits and losses, as well as two years’ worth of 1099s and tax returns documenting the self-employed income.

The next bucket of documentation concerns debts. You’ll need to list all of your current debt balances and monthly obligations, including auto loans, student loans, and credit card balances. You won’t need to provide statements, though, as the lender will verify information against your credit report.

Next comes asset documentation. This includes the last two months of statements for any bank, CD, retirement, and investment accounts you hold, as well as for any life insurance policies with a cash value or owned real estate.

Lastly, various miscellaneous documents may be required given your specific situation, such as a letter confirming any received gift money is not expected to be repaid, proof of one year’s rent payments if you are a renter, or your divorce decree if you’ve divorced.

Why you should still consider local mortgage lenders

By Sabrina Karl

Anyone shopping for a home loan can see that online players have become a dominant force in the mortgage marketplace. Whether it’s big-name traditional banks or online-only lenders, the push to shop nationwide is as strong as ever.

But working with a local lender can still offer benefits, especially for certain types of homebuyers.

When you apply locally, you’ll be working directly with an individual loan officer, and most likely will meet with them face to face. This may seem simply quaint to some, but for others it can feel like a welcome friendly face during an otherwise intimidating process.

The feel-good aspect of personalized service is only part of the equation, though. For instance, self-employed homebuyers or those with multiple income streams may have difficulty gathering all their documentation, and a loan officer can assist in that process.

Mortgages by local lenders can also be approved more speedily, in some cases, since you are applying to an individual instead of a massive department that receives hundreds of applications a day.

A local loan officer may also be more flexible in approving your the loan. Whereas big lenders have rigid underwriting guidelines, a local lender may have more leeway. This is particularly true if it will keep the mortgage rather than sell it to Fannie Mae or Freddie Mac.

Local lenders often can even help if they foresee your application being rejected. They may be willing to work with you on steps that will strengthen your application so that your mortgage can be approved in the near future.

Rates and fees will of course be an important consideration. But for homebuyers who may want or need a more personal touch, a speedier process, or greater approval flexibility, the lenders in your community are worth a look.