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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Hi Ricardo, I need some gift money!
Ricardo, that's wonderful for buyers. I think most families are willing to help out, but are unsure of how to do so and this post shows them how. Great information!
Thanks for the post Ricardo! I have run into many buyers who were unaware of Gift Money and how they get it, and how they use it! Now, I'm with Susie, I love presents so gift money is right up my alley!
Paper trail paper trail paper trail.
Gift funds have always been a great source of that down payment. I always tell buyer clients about it, but also advise them to keep a good paper trail of everything. Makes things go much more smoothly!
Good article Ricardo, as always.
Susie: :D I know a few people who wouldn't mind a little gift money sent their way.
Linda: Thanks for stopping in. You are right, most families are willing to help in any way they can. They just don't know if 1. there's a limit to how much Gift Money can be given, 2. the tax implications involved in giving larger sums of Gift Money. I'm hoping this addresses both matters well enough.
So thanks again for stopping by and feel free to email it along (that goes for you, Susie and Leesa).
Leesa: Good morning! I think this post should point them in the right direction. If and when they do contact a lender, have them double-check with underwriting and that should clear things up. If they still have any questions, have them give me a holler :D
My parents gifted my brother some money for his first home purchase some 4 years ago. I think that the general sentiment is that any parent(s) wants to help in any way that they can (short of co-signing on the mortgage).
Kris: Thanks for adding that! It's definitely very important to know how much is being given! And it most definitely makes things run much more smoothly. The more information you have up-front, the smoother the underwriting process.
Thanks for stopping in to say good morning Kris :D
Very nice post. Thanks for the math and exapmles. It is all clear when you lay it out the way you did
Charlie: Thanks for visiting and thank you for the compliment! I hope you'll stop again soon... Feel free to pass the information along via email.
Ricardo
A lot of great information.
Thank you
Tom Braatz
Ricardo - Great explanation as to how gift money can be factored into the process. I too could use some gift money..Lol