How Do You Use A Gift When Buying A House?

hey kyle here with winthhouseylove.com in this video i'm going to show you how gifts work for a down payment and closing costs to buy a home so for a lot of people saving for a down payment and closing costs is really difficult as homes continue to increase in cost so does the down payment as well and so there are a good amount of people who then rely on their family sometimes outside of family to help them with the down payment and closing costs with a gift and what the way gift works is it's someone gives money to somebody purchasing a home without expectation that that is going to be repaid so it's a gift it's not a loan so what i want to do is i want to help you see all the requirements here because gifts can be actually really frustrating in the mortgage process there's gonna be a lot going on when you look to buy a house and if you're looking at using a gift people just start moving money around and it creates so much frustration for people and so i want to guide you through the best way to do this that way you have as little frustration as possible when you are choosing to use a gift so so this is a high level overview of how this works so we first have a gift letter and i'm going to show you a little bit more about the gift letter here in the next slide but what a gift letter does is it basically says uh somebody is willing to give you money to buy a home for the down payment closing cost uh you know either or and they don't expect to be repaid okay and this is something that the lender is going to give to you from there what then ends up happening is there's going to be a transfer of money from the donor to the person buying the home or there's several different ways this can actually happen and this is where it gets messed up you need to do this the right way people often just want to start moving money around and it creates so much stress because there's a lot more documentation that can be required and it just adds in extra kind of hurdles to the process that you don't really want to have to deal with so i'm going to show you the right way to do this so we go from a gift transfer of funds happens and then that is money that you can use as a down payment closing costs that you aren't paying back okay so gift letter all this is is usually just a one page document that you're going to get from your loan officer so you don't have to make this on your own you're going to get this from your loan officer this is what it needs to have on it it's going to have the name of the donor so who's giving you the money their address their phone number their relationship to you and i'll show you who is eligible as a donor and who's not also the gift amount that they're giving you most of the time the gift amount tends to be whatever the minimum down payment is so for conventional loans three percent for first-time home buyers fha loans is three and a half percent um va and usd don't require a down payment but sometimes closing costs are gifted in there as well so usually i see it around the minimum down payment however you really can gifts um with most loan programs any amount that you'd like it also has to say that there is no expectation of repayment and then most of the time you need to also show in the date of the transfer of that money as well so let's first talk about conventional loans i'm going to walk you through conventional fha va and usda all those different loan types and their requirements here so you don't run into any frustrations when you do get a gift with these loans so first of all who is an eligible donor so who can actually give you money this can trip up a lot of people because it's not just anyone right it can't just be a friend it can't just be uh somebody who said i'll give you some money that doesn't really work and also if you have any more of those friends let me know i'd love to talk with them so eligible donors you can it can be a borrower's spouse child or another independent or any individual who is related to the borrower by blood marriage adoption or legal guardianship fiance and do you say in the same way fiance fiance the same thing domestic partner um and it cannot be or have any any affiliation with an interested party in the transaction basically what that means is it can't be the seller it can't be the real estate agent they cannot give you a gift to buy your home okay also this does have to be on a primary residence or secondary residence so you cannot get a gift on an investment property and if you're buying a home that is two to four units that's a primary residence you need at least five percent down of your own and then you can get a gift on top of that um or if it's a secondary home uh you that's less than twenty percent down i don't know is this greater if it's a secondary home that's less than twenty percent down you also need to put five percent of your own money down so for most people that's a very unique situation that's probably not going to matter that much so for documentation there's four different kinds of documentation so it can be one of the following and you know what's really fun is there's an ant crawling on the slide over here and it is annoying me and i know it's going to disappear by the end of this video and i'm i'm going to freak out okay anyway so documentation can either be a copy of the donor's check and borrower's deposit slip copy of the donor's withdrawal slip and borrower's deposit slip copy of the donor's check to the closing agent or a settlement statement showing receipt of the donor's check so there's a lot of documentation in here and the reason why this bottom one is in green is this is the best option with the least amount of friction what we don't want to do when you're getting a loan you want to give the underwriter the minimum amount of documents possible because documents that they see they get to ask questions about and we just don't want extra questions and sending in extra documents that can require additional documents on top of it we don't want that we want to send in the minimum amount possible and this is the best solution here so what happens a lot of times is people make the mistake of they have the donor sends them a check they're like oh yeah i already sent them a check and i deposited it okay well now that has to be documented as one of these options the easiest solution is to have whoever is giving you money have them send it directly to the settlement agent so um you know around here that's our title agent so send it directly to the title agency and they can provide a receipt that that money was received and then you don't need anything from your statement side they don't need anything from the donor statement it just makes it a lot easier than having to you send in bank statements multiple times to show the money you had and now the new gift and it's it gets a little complex and people start getting frustrated and so just have the donor send it directly to the title company okay it's going to work out the same way whether it hit your bank account or it's just applied as a credit towards your cash to close so you still get the gift both ways gift of equity is allowed and that is where someone would instead of giving like a check for money or sending that to a title company they're gifting you a portion of the equity they already have in the home and basically transferring that over to you for freddie mac same thing it's a conventional loan it's just a different brand of conventional loan might be a good way to think about it you have fannie mae freddie mac talk to your loan officer about which one you're using it's going to be the same thing as fannie mae the only really interesting difference here is that it does allow wedding gifts fannie mae and all the other loans don't talk about wedding gifts except freddie mac actually mentions it in their guidelines and they don't limit who the eligible donors are right the other slide i talked about who could be an eligible donor but with freddie mac if it's a wedding gift it can be anybody so what it requires is a copy of a marriage license and verification of the gift fund deposit within 60 days of the date of marriage if it's beyond 60 days at that point those funds have seasoned in which i've talked about my down payments video and you don't it's not going to be treated as a gift anymore it's just going to be your own funds but if it's in that within that 60 days it's a gift and you need those two things um okay fha eligible donors um fha is a lot more restrict on the gift requirement side so they can say a family member i'll just run through this list really quickly child foster child parent grandparent spouse or domestic partner legally adopted son or daughter brother sister stepbrother stepsister uncle aunt son daughter father mother brother or sister-in-law employer employer or labor union a close friend with clearly defined interest in the barber this one is really tricky um i've only heard stories of people being able to make this work i've never actually seen it in person um usually the only time i've seen this work uh it tends to be when it's a couple who is engaged uh and they're our close friend and the clearly defined interest is the fact that they got engaged um i've heard stories of people saying yeah a friend gave money and they printed out their facebook news feed of how much they poked each other and whatever you do on facebook uh i i don't know if that's really flies anymore this is one of those kind of gray areas for underwriters that they usually aren't okay with just signing off on because it's so vague and then other one is charitable organization or government entity this would be like if you're getting down payment assistance would be through something like that okay fha primary residents only fha loans are for primary residence residences only anyway cash on hand is not allowed a donor cannot take cash and just hand it to you that's not an acceptable source documentation okay so again we have three different options here the green one is the best uh the first is if it's already in your account if they give you money and it's in your account already you need the donor's bank statement showing withdrawal and evidence of deposit into your account this is the big thing with fha that trips up a lot of people is that if you're getting a gift from somebody you should expect that the underwriter is going to ask for 30 days worth of bank statements from the donor it's really frustrating i'll explain a little bit more that in detail uh the amount of times i've had people yell at me because of this is too many to count but that's just the rule i unfortunately can't change it that's fha's rule um they want to see the donor bank statement as well okay so just that's a heads up if you're using an fha loan and getting a gift you need to have that conversation with the person giving you the money hey this is what's required on the loan these are the guidelines and then they can make that decision if they're comfortable uh giving you the money after that but that's a conversation you need to have with your donor if it's not in your account they need a certified check money order cashier's check or a transfer showing the withdrawal and then also we can do the solution that i like the best which is paid directly to the settlement agent and then the loan officer can actually reach out to the settlement agent and get receipt showing that they actually have that even if it's paid directly to the settlement agent you still should expect that the underwriter will request the donor's bank statements gift of equity is allowed but the only eligible donor is a family member so fha does have this small little blurb in their guidelines that says regardless of when the gift funds are made available to a borrower the lender must make a reasonable determination that the gift funds were not provided by an unacceptable source like a a real estate agent or something like that this usually requires a copy of the donor's bank statement okay so just know that when you go into an fha loan looking at a gift you likely are going to need a bank statement from the donor and keep in mind too like it's not like um so if you're getting uh a gift from let's say a parent they don't have to your parent doesn't have to send you their bank statement then you send it to your loan officer they can send it directly to the loan officer like i've done that plenty of times so nobody sees each other's bank statements nobody sees what's going on but the underwriter has to verify that it didn't come from the seller or the realtor or whatever um usda i should say this is probably a good time to mention which i i don't do a good job of self-promotion if you're looking for a loan officer who can help you as a harvard teacher who can walk through guidelines like this with you i have a link in the description same thing if you're looking to connect with a real estate agent and have several other tools in there that can help you compare different loan quotes find what your maximum purchase price is look at your affordability all that is in the description if you'd like to do that shameless self-promotion over usda loans eligible donors this is a little bit different on usda and va because they don't have this long list of well i guess it wasn't long they don't have this list of has to be family member um it's really anyone that doesn't have an interest in the sale of the property uh the seller the builder real estate agent okay uh so as long as it's not those people it can be a friend it can be any random person who decides to give you money um it doesn't require the donor to have familial ties to the borrower gifts cannot be used as reserves it's just a little side note in there on other loans you can use a gift as a reserve sometimes loans like fha might say you need three months reserves that's the money left over in your bank account after you pay for your down payment closing costs um but on usda it cannot be reserves uh cash on hand is also not acceptable uh in there as well okay va eligible donors same thing as usda anyone that doesn't have an interest in the sale of the property and then for documentation it's a lot more relax it is just evidence of the borrower's deposit or copy of the donor's funds by check electronic transfer to closing agent or the cd showing receipt of donor funds and so the way that both of usda and va work are going to be very similar in that it's going to be the best to just transfer it directly to the title agent okay gift equity is not in the guidelines but it's likely similar to usda okay and so with usda the way that gift of equity works is that since usda and va are both zero percent down normally you're not really needing a down payment and so it doesn't really make sense to have a gift of equity instead it's a reduction in the purchase price okay and one rare trick that probably is going to be used is not going to be used by a lot of people i've only run into this a couple times but if you have somebody who is willing to give you a 100 gift okay hear me out on this um this is a very rare situation so i call it rare trick i've run into a situation where um a parent wanted to give a son cash to buy the home but then the son was going to pay the money back and get a mortgage for it so the sun got the advantage of having a cash offer but being able to take long-term financing now normally people do this on their well when people have the cash they can do this on their own using a method called delayed financing but when someone else does it for you this is the trick to make it work if you're in this very rare and unique situation the way that this happens is somebody can give you someone can pay cash for the home okay it can be in your name but then what they need to do is actually write a small little note like they can look up notes template online they need to give you a loan that has a payback period an interest rate and all that and then what ends up happening is you can actually do a rate and term refinance to pay them back and then you had a lo you now have a long-term loan but you're able to do cash uh a cash offer upfront so very rare trick not a lot of people are in this that situation but i don't think a lot of people know that solution um does exist if you are in there so here is the best plan all right boiling all this down look into your your unique loan that you're using and the requirements the first thing is a gift letter is going to be written and then don't move money around please don't move money around it just makes it so much more complicated and then you get kind of defined in to what you're able to do so the gift letter is gonna be written you're gonna get this from your lender ask your lender for the gift letter you're gonna fill that out fill it out with your donor and then have the donor directly transfer the money to the settlement agent talk to your lender about who exactly do i need to send that money or who do they who does the donor need to send that money to if you're using an fha loan expect that they will request the donor's bank statements even if you do that this is the easiest solution here okay i hope this was helpful if you are looking to talk with a loan officer who has the heart of a teacher who makes videos just like i do link is in the description same thing with a real estate agent if you're looking for one in your city who can help you or maybe you're just wanting to interview a couple different agents i have a link in the description for that along with a ton of other tools thank you for watching

Channel: Win The House You Love

Views: 16,104

Keywords: win the house you love, kyle seagraves

Id: IP6P4B6n7n4

Length: 16min 52sec (1012 seconds)

Published: Sat Mar 05 2022