Question about down payment $

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Shay_IHB

Shay_IHB

New member
<p>I see that one of the qualifications in the new lending standards is that at least 5% of the cash must come from your own funds. </p>

<p>Here's my scenario: I am fortunate enough to have a set of grandparents that would like to give me some cash towards a down payment. It's definitely not 5% worth of funds, but it is a wonderful and unexpected offer. They are looking to transfer this money from their slush fund into an easily accessible account w/ my name and social security number associated with it. </p>

<p>My question is this: My grandfather would ideally like to keep this a joint account between he and I. I have absolutely no problem with this; but I'm wondering if having his name and social security number associated with the account could cause me issues with it qualifying as "my" money when it comes time to use it as a downpayment. </p>

<p>Thoughts? </p>
 
As long as your name is on the account it would legally be considered your money, so i would not think it would be a problem.
 
You'll need to get a letter from your grandfather stating that you have access to 100% of the money. It will most likely need to be in an account with your name on it for at least 2 months. Anytime you share an account with a non-spouse, a lender will want proof that you have access to 100% of it.





You can also just have it considered a "gift of equity" which is allowed by most lenders. In this case your grandpa just signs a piece of paper that says he gifts this money to you without any repayment necessary.





In addition to the down payment funds you'll need to have cash reserves in an account with your name on it. Usually 2 months PITI.
 
I agree with lendingmaestro all you need is a letter saying no repayment is necessary. It works for most banks. They have to be a certain relationship to you and grandparents work.
 
<em>LM, 75% of a 401k balance counts as cash reserves, correct?</em>





Obviously LM knows this better than me, but I asked a lender about this recently and they told me your 401k balance counts...it was the fact that you theoretically had access to the money if you needed it that covered the cash reserve requirement. Could be different for different lenders, though.
 
A percentage counts, yes, but is different for each lender. It is generally around only 60% to 70% though. Just ask the bank and they'll tell you.





I remember three years ago, some banks wouldn't even consider retirement accounts if only up to 50% of the balance max.
 
Given the alarming rate at which homedebtors are drawing down their retirement funds in an effort to stay afloat, I could certainly imagine lenders becoming more wary about considering those funds in any kind of meaningful way.
 
That's why banks want the most updated statement. The lender will also take into consideration any outstanding loans against the account. A VOD is required.
 
<p><em>Don't mortgage applications ask you if some portion of your downpayment funds come from a gift or other non-income source? If so, what do they do with that information.</em></p>

<p>When we purchased our first home in 1994, our bank researched every penny of our down payment. They pulled our bank records to see how long the money was in our account, etc. My mother loaned us $10k towards the downpayment, and the bank wanted a letter from her stating that it was a gift and not a loan. </p>

<p>Times have changed.</p>
 
Cal Gal,



Ditto Here.........I had to show where the down payment, 20%, came from with a 6 month paper trail.......



I believe that this requirement is coming back....................this alone will knock about 35 % off the value of homes in orange county.
 
If you get an FHA loan, the down payment--as low as 3%--can be 100% gift. There are (literally) thousands of homes in Orange County that now qualify for FHA financing to a maximum loan amount of $729,750. The "gift letter" is a special form that the giftor fills out.
 
Shay, with respect to your name on your grandfather's account: your "ownership" of the account must be seasoned--in most cases for three months. If you're going to use grandfather's account as qualifying assets, you should "hop on" his account immediately. In that case, you would need no gift letter.
 
<i>"Would a joint account avoid raising red flags regarding large taxable gifts?"</i><p>

It all depends. If the grandparents file the gift tax form, ( I forget what it is called ), with their return, no problem. Financial institutions and businesses are required to report any transaction involving $10,000 or more.<p>

A gift has to be very, very large in order to incur gift tax. Don't ask me the exact number. I can no longer remember exact numbers and this one changes every two years until 2011. If you want to know the lifetime uniform gift tax exemption amount; www.irs.gov
 
ISB - You may make a gift of $12,000 before you incur gift tax, but after the $12,000 you incur gift tax or you start using your uniform gift tax exemption, which is much, much, more. You do not have to report any gift of less than $12,000. Using your gift tax exemption also uses your estate tax exemption.<p>

Daedalus referred to a large gift and red flags. A gift of less than $12,000 would not be reportable nor would it bring attention to the giver. I assume by large gift, Daedalus is referring to amounts that either incur gift tax or qualify for the uniform gift tax exemption.<p>

Financial institutions and businesses are required to report any transaction involving $10,000 or more.
 
<em>>> Financial institutions and businesses are required to report any transaction involving $10,000 or more.</em>





Or, as Eliot Spitzer found out, multiple transactions that could be construed as trying to avoid the reporting limit.
 
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