Gifting an Option for Home Closing Costs
With increases in prices for just about everything, it gets more and more difficult to
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Paul Murphy for more information about this article.
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stash away a nest egg for a down payment. And pretty much every loan requires some part of down payment, even if you get a 100% financing loan. After all, you still are generally going to be required to put down some earnest money on your contract and in most cases, pay for an appraisal up front. You may have been trying to save it up on your own, but it may be time to accept some help from your family.
Most loan programs, be it Conventional, FHA, VA or Rural Housing, require the borrower to pay for something. In particular, FHA and Conventional home purchases want a minimum of 3% to come out of the borrower's pocket. If you are doing a Conventional loan, you still can't receive a gift for your 3% down payment, but you can use a gift to help with closing costs. However, FHA will allow your source of down payment to be a gift. So, if you find yourself a bit short on cash, you may need to ask someone to gift you the down payment or closing costs.
All lenders are particular about just who can give you a gift for your down payment or closing costs. The gift must be from
a blood relative, and you may have to prove that the gifter is a relative via
birth certificates. Conventional loans will also allow an employer to give you a gift. But in any case, the most important
factor is that whoever is giving the gift does not expect to be paid back. A certification to that effect will be
required to be signed by the donor.
Lenders are very particular about how the gift funds reach the closing table. If you deposit the gift before closing,
you have to show it coming out of the donor's account and depositing into your account. It's a lot of paper to
collect. The easiest method is for the gifting party to just send a cashier's check payable to you and your title
company to the closing table.
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