Financial Gifts and Homebuying
10 Feb2010
Filed Under Buying, Lending · Tagged: · Print This Article
If you are buying or selling your house and bringing cash to the table, you may need to know the appropriate guidelines for using financial gifts. Many of us are fortunate enough to receive money from a parent or other relative in order to buy a house. But you can’t just deposit a huge check into your account and easily use it for a downpayment. Please read through these important guidelines, which come directly from our lender. Basically, you need a solid paper trail.
If the gift funds are verified in the account before you apply for your loan and appear on your statement, you need to prove the funds were a gift. You will need a Gift Letter document from the giver (“blood” relatives/immediate family are the least risky) explaining that you do not need to repay the funds. Your lender may have a Gift Letter form for the gift giver to fill out, or may have guidelines for drafting the letter. Ask your lender.
[The Gift Letter is applicable if the funds appear on your statement. If these funds have been in there a few months and don't appear on a statement, then most likely verification is unnecessary.]
If you are receiving the gift between the application and in time for closing, you will need the same Gift Letter, as well as a few more documents. You will need to prove:
Availability of donor funds by providing ONE of these documents:
- Donor’s bank statement
- Letter from donor’s bank
- Cancelled personal check from donor
Accurate transfer of funds by providing ONE of these:
- Cancelled personal check from donor
- Withdrawal receipt from donor
- Copy of check before it is cashed and evidence from donor’s bank that check cleared
- Wire transfer confirmation showing donor and borrower account information
Receipt of funds by providing ONE of these:
- Borrower’s deposit receipt
- Borrower’s bank statement showing the deposit
- Wire transfer confirmation showing donor and borrower account information.
What if you are depositing many smaller monetary gifts after a wedding? Many newlyweds accumulate a large sum from small gifts that they may be depositing during the homebuying process. You probably won’t be able (or need) to provide all of the above documentation, but the paper trail is important.
Our lender Sharon Natarus says, “What I would suggest, is for the couple to make copies of the gift checks — hopefully you received mostly checks and not as much cash. [Then] we would have a copy of the wedding invitation to verify the date and the fact that a formal wedding with lots of guests was held.”
Sharon says cash is not as easy, but workable. In theory, your deposits will correspond closely to the date on your invitation, and then you have your paper trail to indicate the wedding as a result of a large deposit. If your wedding happens to be upcoming, and is perhaps between your application and closing on a home, talk to your lender about the best ways to handle wedding gift deposits.
Remember, be able to provide a paper trail for large deposits that will appear in your account, and document as much as you can to prove you are not in debt for those funds.
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