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How Do You Use A Gift When Buying A House? - YouTube
Channel: Win The House You Love
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hey kyle here with winthhouseylove.com
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in this video i'm going to show you how
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gifts work for a down payment and
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closing costs to buy a home so for a lot
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of people saving for a down payment and
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closing costs is really difficult as
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homes continue to increase in cost so
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does the down payment as well and so
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there are a good amount of people who
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then
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rely on their family sometimes outside
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of family to help them with the down
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payment and closing costs with a gift
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and what the way gift works is it's
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someone gives money to somebody
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purchasing a home without expectation
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that that is going to be repaid so it's
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a gift it's not a loan so
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what i want to do is i want to help you
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see all the requirements here because
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gifts can be actually really frustrating
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in the mortgage process there's gonna be
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a lot going on when you look to buy a
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house and if you're looking at using a
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gift
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people just start moving money around
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and it creates so much frustration for
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people and so i want to guide you
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through the best way to do this that way
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you have as little frustration as
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possible when you are choosing to use a
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gift so so this is a high level overview
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of how this works so we first have a
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gift letter and i'm going to show you a
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little bit more about the gift letter
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here in the next slide but what a gift
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letter does is it basically says uh
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somebody is willing to give you money to
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buy a home for the down payment closing
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cost uh you know either or
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and they don't expect to be repaid okay
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and this is something that the lender is
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going to give to you
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from there
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what then ends up happening is there's
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going to be a transfer of money from the
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donor to the person buying the home or
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there's several different ways this can
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actually happen and this is where
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it gets messed up you need to do this
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the right way people often just want to
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start moving money around
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and it creates so much stress
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because there's a lot more documentation
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that can be required
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and it just adds in extra kind of
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hurdles to the process that you don't
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really want to have to deal with so i'm
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going to show you the right way to do
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this so we go from a gift transfer of
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funds happens and then that is money
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that you can use as a down payment
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closing costs that you aren't paying
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back okay so gift letter
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all this is is usually just a one page
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document that you're going to get from
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your loan officer so you don't have to
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make this on your own you're going to
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get this from your loan officer this is
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what it needs to have on it
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it's going to have the name of the donor
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so who's giving you the money their
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address their phone number their
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relationship to you and i'll show you
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who is eligible as a donor and who's not
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also the gift amount that they're giving
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you most of the time the gift amount
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tends to be whatever the minimum down
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payment is so for conventional loans
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three percent for first-time home buyers
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fha loans is three and a half percent um
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va and usd don't require a down payment
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but sometimes closing costs are gifted
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in there as well so usually i see it
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around the minimum down payment however
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you really can gifts um with most loan
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programs any amount that you'd like
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it also has to say that there is no
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expectation of repayment and then most
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of the time you need to also show in the
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date of the transfer of that money as
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well so let's first talk about
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conventional loans i'm going to walk you
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through conventional fha va and usda all
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those different loan types and their
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requirements here so you don't run into
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any frustrations when you do get a gift
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with these loans so first of all who is
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an eligible donor so who can actually
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give you money
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this can trip up a lot of people because
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it's not just anyone right it can't just
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be a friend it can't just be uh somebody
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who
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said i'll give you some money that
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doesn't really work and also if you have
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any more of those friends let me know
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i'd love to talk with them so eligible
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donors you can it can be a borrower's
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spouse child
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or another independent
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or any individual who is related to the
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borrower by blood marriage adoption or
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legal guardianship fiance
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and do you say in the same way fiance
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fiance the same thing domestic partner
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um and it cannot be or have any any
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affiliation with an interested party in
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the transaction basically what that
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means is it can't be the seller it can't
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be the real estate agent they cannot
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give you a gift to buy your home
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okay
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also this does have to be on a primary
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residence or secondary residence so you
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cannot get a gift on an investment
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property
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and if you're buying a home that is two
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to four units that's a primary residence
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you need at least five percent down of
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your own and then you can get a gift on
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top of that um or if it's a secondary
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home
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uh
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you that's less than twenty percent down
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i don't know is this greater if it's a
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secondary home that's less than twenty
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percent down you also need to put
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five percent of your own money down so
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for most people that's a very unique
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situation that's probably not going to
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matter that much
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so for documentation
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there's four different kinds of
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documentation so it can be one of the
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following and you know what's really fun
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is there's an ant crawling on the slide
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over here and it is annoying me and i
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know it's going to disappear by the end
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of this video and i'm i'm going to freak
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out okay anyway
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so documentation can either be a copy of
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the donor's check and borrower's deposit
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slip
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copy of the donor's withdrawal slip and
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borrower's deposit slip copy of the
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donor's check to the closing agent
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or a settlement statement showing
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receipt of the donor's check
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so there's a lot of documentation in
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here and the reason why this bottom one
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is in green is this is the best option
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with the least amount of friction
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what we don't want to do
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when you're getting a loan you want to
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give the underwriter the minimum amount
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of documents possible because documents
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that they see they get to ask questions
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about and we just don't want extra
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questions and sending in extra documents
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that can
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require additional documents on top of
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it we don't want that we want to send in
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the minimum amount possible and this is
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the best solution here so what happens a
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lot of times is people make the mistake
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of they have the donor sends them a
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check they're like oh yeah i already
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sent them a check and i deposited it
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okay well now that has to be documented
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as one of these options the easiest
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solution
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is to have whoever is giving you money
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have them send it directly to the
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settlement agent so um you know around
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here that's our title agent so send it
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directly to the title agency and they
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can provide a receipt that that money
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was received and then
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you don't need anything from your
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statement side they don't need anything
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from the donor statement it just makes
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it a lot easier than having to you send
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in bank statements multiple times to
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show the money you had and now the new
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gift and it's it gets a little complex
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and people start getting frustrated and
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so just have the donor send it directly
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to the title company okay it's going to
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work out the same way whether it hit
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your bank account or it's just applied
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as a credit towards your cash to close
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so you still get the gift both ways
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gift of equity is allowed and that is
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where someone would instead of giving
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like a check for money
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or sending that to a title company
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they're gifting you a portion of the
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equity they already have in the home and
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basically transferring that over to you
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for freddie mac
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same thing it's a conventional loan it's
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just a different
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brand of conventional loan might be a
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good way to think about it you have
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fannie mae freddie mac talk to your loan
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officer about which one you're using
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it's going to be the same thing
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as fannie mae the only really
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interesting difference here is that it
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does allow wedding gifts fannie mae and
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all the other loans don't talk about
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wedding gifts
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except freddie mac actually mentions it
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in their guidelines and they don't limit
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who the eligible donors are right the
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other slide i talked about who could be
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an eligible donor but with freddie mac
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if it's a wedding gift
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it can be anybody so what it requires is
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a copy of a marriage license and
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verification of the gift fund deposit
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within 60 days of the date of marriage
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if it's beyond 60 days at that point
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those funds have seasoned in
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which i've talked about my down payments
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video
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and
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you don't it's not going to be treated
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as a gift anymore it's just going to be
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your own funds but if it's in that
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within that 60 days it's a gift and you
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need those two things
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um
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okay
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fha
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eligible donors um fha is a lot more
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restrict on the gift requirement side so
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they can say a family member i'll just
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run through this list
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really quickly child foster child parent
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grandparent spouse or domestic partner
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legally adopted son or daughter brother
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sister stepbrother stepsister
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uncle aunt son daughter father mother
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brother or sister-in-law
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employer
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employer or labor union a close friend
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with clearly defined interest in the
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barber this one is really tricky um
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i've only heard stories of people
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being able to make this work i've never
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actually seen it in person um usually
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the only time i've seen this work uh it
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tends to be when it's
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a couple who is engaged
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uh and they're our close friend and the
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clearly defined interest is the fact
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that they got engaged um
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i've heard stories of people saying yeah
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a friend gave money and they printed out
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their facebook
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news feed
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of how much they poked each other and
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whatever you do on facebook uh i i don't
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know if that's
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really flies anymore this is one of
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those kind of gray areas for
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underwriters that they usually aren't
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okay with just signing off on because
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it's so vague
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and then other one is charitable
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organization or government entity this
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would be like if you're getting down
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payment assistance
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would be through something like that
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okay fha primary residents only fha
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loans are for primary residence
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residences only anyway
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cash on hand is not allowed a donor
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cannot take cash and just hand it to you
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that's not an acceptable source
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documentation
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okay so again we have three different
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options here the green one is the best
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uh the first is if it's already in your
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account if they give you money and it's
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in your account already you need the
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donor's bank statement showing
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withdrawal and evidence of deposit into
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your account
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this is the big thing with fha that
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trips up a lot of people is that if
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you're getting a gift from somebody
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you should expect that the underwriter
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is going to ask for 30 days worth of
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bank statements from the donor
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it's really frustrating i'll explain a
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little bit more that in detail uh the
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amount of times i've had people yell at
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me because of this is too many to count
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but
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that's just the rule i unfortunately
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can't change it that's fha's rule um
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they want to see the donor bank
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statement as well okay so just that's a
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heads up if you're using an fha loan and
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getting a gift you need to have that
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conversation with the person giving you
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the money hey this is what's required on
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the loan these are the guidelines
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and then they can make that decision if
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they're comfortable uh giving you the
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money after that but that's a
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conversation you need to have with your
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donor
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if it's not in your account
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they need a certified check money order
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cashier's check
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or
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a transfer showing the
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withdrawal and then also we can do the
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solution that i like the best which is
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paid directly to the settlement agent
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and then the loan officer can actually
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reach out to the settlement agent and
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get receipt showing that they actually
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have that
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even if it's paid directly to the
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settlement agent you still should expect
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that the underwriter will request the
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donor's bank statements
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gift of equity is allowed but the only
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eligible donor is a family member
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so fha does have this small little blurb
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in their guidelines that says regardless
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of when the gift funds are made
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available to a borrower the lender must
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make a reasonable determination that the
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gift funds were not provided by an
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unacceptable source like
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a
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a real estate agent or something like
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that
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this usually requires a copy of the
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donor's
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bank statement okay so just know that
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when you go into an fha loan looking at
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a gift you likely are going to need a
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bank statement from the donor and keep
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in mind too like it's not like um so if
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you're getting uh
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a gift from let's say a parent they
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don't have to your parent doesn't have
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to send you their bank statement then
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you send it to your loan officer they
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can send it directly to the loan officer
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like i've done that plenty of times so
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nobody sees each other's bank statements
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nobody sees what's going on
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but
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the underwriter has to verify that it
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didn't come from
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the seller or the realtor or whatever
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um usda i should say this is probably a
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good time to mention which i i don't
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do a good job of self-promotion
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if you're looking for a loan officer who
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can help you as a harvard teacher who
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can walk through guidelines like this
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with you i have a link in the
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description same thing if you're looking
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to connect with a real estate agent and
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have several other tools in there that
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can help you compare different loan
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quotes find what your maximum purchase
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price is look at your affordability all
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that is in the description if you'd like
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to do that shameless self-promotion over
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usda loans eligible donors
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this is a little bit different on usda
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and va because they don't have this long
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list of well i guess it wasn't long they
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don't have this list of has to be family
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member um it's really anyone that
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doesn't have an interest in the sale of
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the property
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uh the seller the builder real estate
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agent okay uh so as long as it's not
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those people
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it can be a friend it can be any random
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person who decides to give you money um
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it doesn't require the donor to have
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familial ties
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to the borrower
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gifts cannot be used as reserves it's
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just a little side note in there on
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other loans
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you can use a gift as a reserve
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sometimes loans like fha might say you
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need three months reserves that's the
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money left over in your bank account
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after you pay for your down payment
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closing costs um but on usda it cannot
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be reserves
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uh cash on hand is also not acceptable
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uh in there as well
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okay va
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eligible donors same thing as usda
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anyone that doesn't have an interest in
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the sale of the property
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and then for documentation it's a lot
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more relax it is just evidence of the
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borrower's deposit or copy of the
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donor's funds by check
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electronic transfer to closing agent or
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the cd showing receipt of donor funds
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and so the way that both of usda
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and va work are going to be very similar
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in that it's going to be the best to
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just transfer it directly to the title
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agent okay
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gift equity is not in the guidelines
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but it's likely similar to usda okay and
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so with usda the way that gift of equity
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works
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is that
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since usda and va are both zero percent
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down
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normally you're not really
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needing a down payment and so it doesn't
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really make sense to have a gift of
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equity
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instead it's a reduction in the purchase
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price
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okay and one rare trick that probably is
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going to be used is not going to be used
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by a lot of people i've only run into
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this a couple times but if you have
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somebody who is
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willing to give you a 100 gift okay hear
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me out on this
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um
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this is a very rare situation so i call
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it rare trick
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i've run into a situation where um
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a parent wanted to give a son
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cash to buy the home
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but then the son was going to pay the
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money back and get a mortgage for it so
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the sun got the advantage of having a
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cash offer but being able to take
[894]
long-term financing now normally people
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do this on their well when people have
[898]
the cash they can do this on their own
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using a method called delayed financing
[902]
but when someone else does it for you
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this is the trick to make it work if
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you're in this very rare and unique
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situation
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the way that this happens is somebody
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can give you someone can pay cash for
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the home
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okay
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it can be in your name
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but then what they need to do is
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actually write a small little note like
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they can look up notes template online
[922]
they need to give you a loan
[924]
that has a payback period an interest
[926]
rate and all that and then what ends up
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happening is you can actually do a rate
[930]
and term refinance to pay them back
[933]
and then you had a lo you now have a
[935]
long-term loan but you're able to do
[937]
cash uh a cash offer upfront so very
[939]
rare trick not a lot of people are in
[940]
this that situation but i don't think a
[942]
lot of people know that solution um does
[945]
exist if you are in there so
[947]
here is the best plan all right boiling
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all this down look into your your unique
[952]
loan that you're using and the
[954]
requirements the first thing is a gift
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letter is going to be written
[958]
and then don't move money around please
[959]
don't move money around
[961]
it just makes it so much more
[963]
complicated and then you get kind of
[965]
defined in to what you're able to do so
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the gift letter is gonna be written
[969]
you're gonna get this from your lender
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ask your lender for the gift letter
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you're gonna fill that out fill it out
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with your donor
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and then have the donor directly
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transfer the money
[977]
to the settlement agent talk to your
[980]
lender about who exactly do i need to
[981]
send that money or who do they who does
[983]
the donor need to send that money to if
[985]
you're using an fha loan expect that
[987]
they will request the donor's bank
[989]
statements even if you do that this is
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the easiest solution here okay i hope
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this was helpful if you are looking to
[995]
talk with a loan officer who has the
[996]
heart of a teacher who makes videos just
[998]
like i do link is in the description
[1000]
same thing with a real estate agent if
[1001]
you're looking for one in your city who
[1003]
can help you or maybe you're just
[1004]
wanting to interview a couple different
[1006]
agents i have a link in the description
[1007]
for that along with a ton of other tools
[1010]
thank you for watching
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