Accepting a Down Payment Gift the Right Way
Image by midnightglory via Flickr
When we bought our home a couple of years ago, we needed a bit of help. My parents gave us a gift of $1,500 to help us toward our down payment. This is perfectly acceptable, but it needs to be clear that the money is a gift, not a loan, and that the giver understands this. The Mortgage Reports has three steps to making sure that a down payment gift is handled the right way:
- Create a “down payment gift letter”: This is document that includes the amount of the gift, the address of the property that is being bought, the relationship between the giver and the receiver, states explicitly that the gift is not a loan and is signed dated by all involved.
- Get the money: Use a method that will leave a paper trail. The Mortgage Reports recommends a certified check, because there is a cashier receipt provided to the giver. This should be kept as a record of the transaction.
- Deposit the money: Make a separate deposit of the money. Do not get cash back. Do not add another check or cash to the deposit. Deposit exactly the amount of the down payment gift.
You should also understand that gifts come with tax implications. You will need to check with a knowledgeable tax professional to make sure that everything is handled correctly.
Watch out for down payment assistance programs
Even though laws have been enacted to make down payment assistance programs tougher to administer, they still exist. Be aware that some of these programs are actually loans. They are not worded as such, but that is what they are. You need to avoid these, since they can add significantly to the cost of your home mortgage loan. Some of them are pretty much scams.
Be careful of where you get help making a down payment. With down payment requirements increasing, you may need to save up more money and/or get some help from friends and relatives. Just remember, though, that down payment help is supposed to be a gift, free and clear, and not a loan.
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August 6th, 2009 at 8:35 am
[…] Accepting a Down Payment Gift the Right Way Image by midnightglory via Flickr When we bought our home a couple of years ago, we needed a bit of help. My parents gave us a gift of $1,500 to help us toward our down payment. This is perfectly acceptable, but it needs to be clear that the money is a gift, not a loan, and […] […]