One of the most common frustrations I hear from Salem Oregon home buyers is that they are using GIFT funds for their down payment and they don’t understand why we have to pick apart the documentation…or even document it at all. This seems like a great place to shed some light on the whole gift issue, so here goes:
When Mom, Dad, Uncle Jim, or Aunt Sue agree to give you $5000 to buy a new home, it seems like they should be able to give you the money and everyone’s happy. Unfortunately, lending guidelines require a little more than that. The issue is that they *could* be giving you a gift, but they *could* be expecting you to repay them as well. Family members aren’t afraid to tell a little white lie for one another… So…what if you are to repay the “gift”? Is there a monthly payment? Can you actually qualify WITH the payment to your relative? There really is a reason for all the nit-picking, I promise!
Once we get past the gift letter and accept the fact that we need to document the gift funds, the next big issue comes up: “WHY do you need to prove that the gift DONOR had the money to give?!?” Well, we have to look at lending guidelines again and see the common sense answer. A family member is likely to GIVE money to help another family member out. There is a select group of relationships that are allowed to give a gift. Your next door neighbor may have the money, but if you convince him to give it to you, he’s most likely going to want it back, right? So…since your neighbor has the money, and Aunt Sue is an acceptable gift donor, wouldn’t it be simple for the neighbor to give Aunt Sue the money to give you? Then there would be a new debt to the neighbor… So, the solution is to make sure Aunt Sue actually had the money to give in the first place. It’s frustrating, but it’s the only way to avoid loan fraud and putting people in homes they can’t actually afford.
So, if you’re thinking of buying a home, and you plan on using a gift, take note of the items you’ll need to provide as documentation:
– Gift letter (provided by your lender)
– Copy of the gift check to you from the donor (Personal checks are best)
– Copy of the CANCELED check from the donor’s account (OR – if not a personal check – most recent bank statement from donor showing available funds, no unusual deposits, and the withdrawal of the gift)
– YOUR most recent bank statement, or transaction history signed by a teller, showing your balance after the gift was deposited.
If you gather this documentation carefully the first time around, the frustration level will drop considerably and the paperwork will cruise through underwriting.
One last tip: If you KNOW you’re going to be getting a gift, and you KNOW how much it will be…..deposit it in your bank account BEFORE you apply for your home loan, then you’ll ONLY need to provide a gift letter! It’s a little known secret that spares many a home buyer a ton of frustration and paperwork!
Please remember one last thing: in the world of home loans, the name of the game is DOCUMENTATION. It may seem excessive these days, but compared to the days of no documentation that got us in trouble, this is a good thing.
Carmen Babb is a Mortgage Consultant with Wells Fargo Home Loans here in Salem Oregon