How to use gift funds for your Down Payment and Closing Cost.
Updated: Apr 2
At the end of 2019, 35.9% of Americans did not own a home. If you are a part of that percentage, make sure you have explored every single option available for you. A good way to get help with down payment and closing costs is to use a gift fund.
A gift fund is a personal gift given to you by an acceptable donor to use towards your home buying goal. The gift amount may be used to cover all of the amount needed to purchase a home or part of the down payment or closing cost.
There are certain things to consider with gift funds. As I mentioned before, the fund must come from an acceptable donor. Acceptable donors include: your spouse, child, other dependent, or any other individual who is related to the borrower by blood, marriage, adoption, or legal guardianship; your fiancé, fiancée, or domestic partner.
A letter must be written by the acceptable donor. The gift letter must include:
• The donor’s name, address, telephone number, and relationship to the borrower.
• The dollar amount of the gift.
• The date the funds were or will be transferred.
• A statement by the donor affirming that no repayment is expected.
Additionally it is important to know when there is a minimum borrower contribution requirement:
• If the property type is a one unit primary residence and the loan- to- value is greater than 80%there is no contribution required from the borrower.
• If the property type is a two to four unit principal residence second home and the loan- to- value is greater than 80% the borrower must make a 5% minimum contribution from their own funds.
• If the property type is a one to four unit primary residence second home and the loan- to- value is 80% or less there is no contribution required from the borrower.
Gift funds can be a great option for you to finally buy the dream home you’ve always wanted. If you want to know more about this or any other financing strategies feel free to reach out to get started.
About the author:
Sheldan Perry is highly skilled mortgage professional with more than 20 years’ experience in all aspects of real estate and finance. He specializes in consumer and investor financing. He can be reached at 713-524-4242.