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Gift Money As A Source of Down Payment On Your Los Angeles Real Estate Purchase

The fact is, it can be tough coming up with enough money for a down payment!

Say you needed 10%... 10% of $400,000 is a whopping $40,000!

Calculation:
$400,000 Purchase Price x 10% = $40,000 (required down payment excluding closing costs)

You've only managed to save $25,000 but you're ready to own; you're paying too much on taxes every year so the mortgage write-off would serve you well and the monthly payments are affordable. What do you do?

Lucky for you your parents really want to help and they've agreed to give you the difference for the down payment and closing costs...this is called Gift Money!

HOW DOES IT WORK? WHAT DO I HAVE TO DO?

You have to provide your lender with a notarized letter (signed by each of the givers) stating that the dollar amount given to you was a gift. Pretty simple huh? And what's great about it is that the money doesn't need to be seasoned.

Also, there is no limit with respect to dollar amount on Gift Money that you can receive but there will be tax implications to the person gifting the money for amounts beyond the $12,000 annual exclusion (you have to file a gift tax for monies beyond $12,000).

*Disclaimer: I am not a licensed CPA so please consult with your local Tax Professional for more clarity on the tax implications of Gift Money.

For more questions on how you can use Gift Money for your down payment and how to appropriately structure your next purchase, you can contact me here or call me directly at (323) 810-2175.

 

 




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10 comments • Ricardo Bueno • May 21 2008 04:09AM

The Origin of Credit...

Did you know that Arthur Morris is the man responsible for creating the installment loan in (or around) 1910?

It was called the Morris Plan (clever name huh) and it was the first stab at making credit available to the average person despite heavy criticism that lending money to working class citizens had failure written all over it.

And yet the American economy today is built on credit!

Back then, the lending requirements were as follows:

  • Two co-signers in order to qualify
  • Loan term = 1 year
  • Payments were made in weekly and monthly installments
Boy how the rules have changed since then.
10 comments • Ricardo Bueno • May 16 2008 07:59PM

[When the Consumer Says] "I didn't know..."

  • I had a pre-payment penalty
  • I had an adjustable rate mortgage, (or worse yet)
  • I had a negative amortization (Neg. Am) loan
  • I had to pay my taxes separately. I thought they were included in my monthly payment (an impound account)
  • My closing costs were rolled into the new loan balance
  • I had the option for lender-paid mortgage insurance
  • I could Lock-In my rate during the application process
  • I could use Gift Money as a source for down-payment
  • I have three different credit scores (Equifax, Experian and Transunion)

[Note: what am I missing from the list? Care to add anything on the Real Estate Listing and Buying side?]

As a consumer, do you ever feel like you fall into one of these scenarios?

To be better prepared/more informed, all you have to do is pay attention to what you're committing to on paper and ask yourself whether it makes sense for you. This includes reading the fine print and asking questions where necessary. If you're not getting any answers, you're probably working with the wrong professional.

Why the rant?

Because the Federal Trade Commission conducted a study for the Federal Reserve wherein the following results were obtained:

"Of those surveyed, 25% could not identify the annual percentage rate of their mortgage, and 25% could not identify the amount of settlement charges. Half could not correctly identify the amount of the loan. Two-thirds were unaware of prepayment penalties that could be charged during refinancing. Three-quarters did not recognize that the loans included charges for optional credit insurance." [Source: Forbes.com] 

 

 

 

Articles of Interest:

Daily Mortgage Rate Update: May 14, 2008

Understanding Mortgage Rate Locks

 

14 comments • Ricardo Bueno • May 15 2008 02:12AM