Are you interested in purchasing a property, but finding that you need some additional capital to help you cover the ever-increasing amount of the down payment or closing costs needed in today’s real estate market? One possible option to help a homebuyer out with these costs is using “gift money” if the borrower is fortunate enough to know someone who is willing to financially help with the price of a home. If you are located in Knoxville, Maryville, Lenoir City, Oak Ridge, or Gatlinburg, Tennessee, and have questions about buying a home using gifted funds, Foundation Mortgage can help. Continue reading to answer your questions about buying a home with gift funds.
How Can I Use Gift Funds When Buying A Home?
Gift funds are a sum of money offered to a borrower to help them afford the cost of a down payment or closing costs when purchasing a property. Borrowers can use gift funds with several types of loans, including FHA, VA, USDA, conventional, and jumbo loans, however, each mortgage company has specific rules pertaining to gift funds. A borrower can use gift funds to buy an investment property or vacation home, even when the home will not be their primary residence. A borrower can accept gift funds from anyone deemed an “acceptable” donor, which can be any approved person, such as a family member, close friend, or employer that gives you the money. The money from the donor cannot be borrowed and must come from their personal funds. It is important to note that gift funds cannot come from someone with a personal financial interest in the purchase, such as a home builder, lender, seller, or real estate agent. If money comes from any of these sources, it is considered a concession or a discount.
What Is A Gift Letter And Will I Need One?
When you apply for a home loan, a lender will evaluate your finances to ensure that you are able to pay back the mortgage. As a lender reviews your financial situation, they will want to ensure that the gift funds are legitimately gifts and that you, the borrower, are not responsible for paying them back. Therefore, in most cases, you will be required to submit a “gift letter” documenting where the money came from, that it is not a loan, and that you are not required to pay it back. In the gift letter, you will want to specify the acceptable donor’s contact information, the address of the home you intend to buy, your relationship to the donor, the exact amount of money that has been gifted, the donor’s signature, and a statement that the funds are not a loan and not intended to be paid back.
If you are purchasing a home in Knoxville, Maryville, Lenoir City, Oak Ridge, or Gatlinburg, Tennessee, and have questions about gift funds, contact Foundation Mortgage today for a consultation.