Down Payment Gift Assistance
There are first time home buyers who find they can make a house payment with no problem
but discover they cannot purchase a home due to the lack of funds for the down payment or the closing costs. This is where a down payment gift assistance program can help.How do down payment gift programs work?
The seller can help pay the closing costs by giving some of the money back at the closing. The amount of this assistance can vary depending on the type of loan product the buyer has qualified for.
Keep in mind the seller is not permitted to give the buyer funds. It is the gift assistance programs (usually a charitable organization) that provide the means for this to happen. They become a go-between that is legal and can get around these regulations.
First of all, the seller submits their house to the program and puts the money needed by the buyer for the down payment plus the appropriate program's fee into the deal.
Next, at the time of closing, the funds are forwarded from the appropriate program to the one doing the closing. This is usually a title company. By means of this process, the seller is not involved in the transaction thus are not violating any law.
Each of these program requirements may be different, but they all basically work the same.
What if a family member wants to gift the funds?
This too can work. But you must document a few things for this to be acceptable. Keep in mind you are not allowed to borrow the money from your family member. Talk to your lender and ask him/her to give you a form called a "gift letter". This will be a form that explains the following:
relationship between you and the one gifting
the address of the property you want to buy
the dollar amount to be given
that this is a gift and not a loan
where the money is coming from like the banking institution where the funds will be coming from
signatures of both you and the family member who is providing the gift
Remember, lenders always want proof of everything. So the gifter may have to provide proof of funds like a bank statement. With most lenders, the donor will have to also provide evidence that they have the ability to make the gift. It is a good idea to make a copy of the check used to for the gift before you deposit it or use a certified check. Also keep a copy of the proof of deposit that you receive when you actually make the deposit.
Most importantly, be sure the amount deposited matches the amount on the gift letter form. Do not mix this money with other money you are planning to deposit. You want the deposit receipt amount to match the amount on the gift letter form. This way there is no question with your documentation.
Are there other ways to obtain down payment gift assistance?
Yes there is another option you can consider. You can check with your current employer to see if they have a down payment program you can use. Why would an employer have such a program? They know that employees that are home owners are more stable and reliable. So be sure you check with your employer for such a program. If they do have such a program, remember you will need documentation.
Down payment gift programs are legal and an awesome way to get those needed funds for your down payment and closing costs. So be sure to check into those possibilities and make sure the loan product will allow gift assistance and soon you will be decorating your new home.
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