Home buyers often need assistance with down payment costs and even closing costs. Just like Lennon and McCartney got “by with a little help from their friends” your home mortgage expenses can get a little help from gift funds. The caveat with mortgage gift funds is that you need to follow the specific protocol to show where the assets came from and how they are transferred into your account.
Typically, the donor of the gift needs to sign a gift letter for submission to the lender stating that a gift of money is being granted to the home buyer and the nature of the relationship (as gifts can only come from family members). Sometimes the lender will provide an actual form that attests to the transaction. (However your lender wants the proof, just make sure you follow it to the letter!)
Oftentimes a copy of the bank statement that reflects the donor’s ability to gift to the recipient is required as well as a receipt of the gift in the form of a copy of the check written by the giftor to the giftee. This is all in addition to the deposit slip showing that the money was deposited into the borrower’s account.
The paper trail is critical to this aspect of the real estate transaction. But remember, lenders and underwriters can ask you to provide the pen that was used to fill out the deposit slip if they so choose, so just give ‘em whatever they ask for!
Basically, lenders are not just concerned about a borrower’s financial history; they are concerned about their financial future. Therefore, these gift funds truly need to be a gift and can’t be money that is borrowed. The bank doesn’t want borrowers starting out a new mortgage with even more debt than what they have borrowed from the bank. They have no desire to compete with your Aunt Cathy to get their mortgage payments!
While gift funds can be granted from family members, in specific circumstances certain non-family members are welcome to offer their monetary assistance. If the source of these funds is someone like a life-long family friend or employer, then the home buyer may need to provide additional documentation as to the nature and length of the relationship for underwriter review.
At the end of the day, when you’re buying a home it is certainly not a bad time to call in a big favor from someone with some extra cash! Just make sure the money is truly a gift and follow every step of the lender’s instructions and you’ll get by with a little help from your rich Aunt.