|
Friends and family want to give you money towards your home down payment. In 2011, 27% of first-time buyers received part of their home purchase down payments in the form of gifts, according to the National Association of Realtors.
But there are strings attached – to the IRS and lenders.
It’s not hard to prove: just get it in writing that you don’t have to repay the funds. “That’s all you have to certify, that these funds are not loans,” says Keith Gumbinger, vice president for mortgage information website HSH.com. If you are at a party or shower, bring the letter and have everyone add their amount and sign on the spot. Keep the gift letters with your other income documentation so you are fully prepared when it’s time to apply for a mortgage.
Here are more tips for making sure those gifts are stamped ‘approved’ by your lender and by the IRS:
• Under Federal tax law, each person can give up to $13,000 to any one other person in any calendar year. A married couple can give up to $26,000 to another person. If a married couple is giving to another set of home-buying partners, the total gift towards the down payment tops out at $52,000.
• Give in late one year and early in the new year to pile up two year’s limits in time for one house purchase.
• Lenders will require proof that the gift is actually a gift and not a loan in disguise.
• Get the money into your savings at least 60 days before you apply for a preapproval.
• Any gift of $1,000 or more must be documented. A simple letter that states the date, the amount of the gift, and that the gift is a gift, signed by both the recipient and the donor, is all that’s required. To be smart, include the donor’s contact information and relationship to you.
• Some lenders will require that you prove that at least some of the down payment derived from your own earnings and savings.
• Funds that have been in your bank account for at least three months are less likely to draw negative attention from lenders. But to be safe, have those gift letters on hand anyway. |
