Family Members & Parents take heed- if you plan to help your family purchase a home, transferring money around could impede their home buying chances. What you need to know…
Must be documented, sourced and paper trailed. Let’s say you’re helping your daughter buy her first home. The amount you plan to give her is $20,000. Her mortgage lender or broker originating her loan will need you to sign a gift letter stating the relationship, and to identify the account where the money is coming from. The old requirement provided to show the most recent statement on this account. New lending regulations now require two months showing where these funds are coming from.
Where Things Become Sticky
If you plan to provide gift funds for your family member buying a home, keep it simple, have the funds in the account ready to go for use in the transaction. If your checking account for example has $10,000, and a new deposit or transfer comes into this account from another source totaling the $20,000 you plan to be donating, things just got more technical. The lender will need to see where the additional funds came from, and sourcing the money movement.
All monies must be accounted for to fully support no money laundering or fraud related activity. Mortgage companies must adhere to this level of scrutiny, but it doesn’t necessarily have to be difficult. If the money to be donated is not in the account you plan to use, take this example as guide. Say the money is coming from a money market account where all your assets are kept. It would be tremendously easier, to simply wire the monies directly from the asset account where the monies normally reside- directly to escrow by passing your daughter’s checking account which typically has daily transfers and withdrawals as most people use a checking account for their normal daily and/or monthly spending activities. Moving the money directly into their checking account or even your account is not necessary. It creates a scenario on paper, the donated funds for the home purchase are being spent!
If the damage if already done, re-gift the monies to escrow, otherwise it may appear your family member has shorted gift funds to close escrow.
The More Movement Of Money The M0re Work
If the main account where the gift funds are coming from does not have an average monthly balance equaling a reasonable amount of the gift funds due to a transfer or deposit, you’ll need two extra month’s statements! The lender will need the additional two months statements from the other account showing where the transfer took place. In total, expect to give four statements, each for the last recent 60 days, detailing the origin of the money and each movement of that money and where it is presently.
*Solution? Move the monies one time, from wherever they originate directly to the title company your family member is using bypassing all of the other potential accounts making their process quick and easy.
Mortgage Tip: If your family member has not yet found a home, no need to move the monies around, keep things status quo. Once they get into contract, then move the money to escrow for them.
Eligible Gift Money Sources
Can it be documented? If yes, then generally those monies can be used to help your family member buy a home.
- Monies in some type of an asset/bank account
- Cold hard cash-can be used as long as the money is seasoned as long as the monies are in a bank account for at least 60 days
- Gift of equity-can be provided from transferring family property or even buying property from a landlord, seller of the property simply agrees to a dollar amount of home equity without needing to provide bank statement as it’s coming from the net proceeds of the home sale
- Sale of personal property- will work with an executed bill of sale along with account showing where these funds came from
When planning to donate monies to a family member buying a home. Just be prepared when there lender asks for supporting documentation on the origin of these funds as well as providing a gift letter. By knowing what to expect upfront, you can help make the process of buying a home much easier for your family member, especially if they are a first time buyer.
Looking to help a family member buy a home? Help them get started by getting a complementary mortgage rate quote, from Scott today. It is free!