Giving Gifts – the Downpayment Kind
Posted by: Greg Fischer Post date: December 22nd, 2011Just like presents during the Holidays, there’s a right way and a wrong way to give and receive gift funds for the downpayment on your new home. If you don’t follow the rules, you could jeopardize your mortgage approval.
Verifying funds – especially gift funds – is an exercise in “follow the money.” Every step of the money’s life cycle over the last 60 days needs to be documented. This is easiest with a little planning up front.
First, Get A Certified “Downpayment Gift Letter”
First, complete and sign a certified gift letter with the following information:
- Include the amount of the gift
- Include the subject property address
- Include the relationship of the gifter to the giftee
- State that the gift is actually a gift and not a loan
- All parties must sign and date the letter
If you need a certified downpayment gift letter for your lender, drop me an email and I’ll get one over to you.
Next, Follow These Good Gifting Guidelines
It’s all about the paper trail. Follow the money.
- Start with the original source of the funds. That’s a bank (or stock, or IRA…) statement with more available funds that the amount of the gift. If transferring funds into a liquid account like checking, show where the deposited funds came from. Document the withdrawal and transfer. If the gift money wasn’t in the account before the last statement, the giver needs to show where it came from.
- Show the transfer of the gift to the giftee. Use certified checks if possible. A personal check or account transfer are acceptable gifting methods, but certified checks are easier to document and simpler to prove – all it takes is a teller receipt. Make sure that the gift amount matches the amount specified on the gift letter. No more and no less.
- And, lastly, when receiving the gift, the giftee should be careful to accept the gift as-is. The amount of the gift deposit should match the amount of the gift. If the gift is for $10,000, for example, make a $10,000 deposit. Don’t add a random $100 check to the deposit, or take some as cash.
Sound extreme? It’s easier than trying to re-create the paper trail weeks later, and much better than not being able to use the funds to close. Of course, the less paper solution is to have the funds transferred into the buyer’s account more than 2 bank statements before trying to close. If your last 2 statements don’t show a large deposit (gift or otherwise) it isn’t questioned. That’s called “seasoned” funds. If the deposit will show on either of your last two bank statements, be prepared to document it.
If during this other kind of season (the Holiday kind) you have any questions about financing or refinancing your home next year, I’m happy to make time to speak with you. If not, I wish you and yours a very Happy Holiday, and a productive 2012.
