Mortgage Guide

How to get a home loan

My parents want to help me with my down payment. What can they do?

This is a common question that comes up in working with borrowers on how to purchase a home. Their parents want to help them. They all think should be pretty simple thing to do, right? The borrowers need money, the parents have it. As a parent myself, it has always been an easy thing to do, give our kids money.

But wait. We’re talking about down payment money for a home purchase? It’s not that easy…

If you need help with funds to purchase a home, ask your lender what is involved in that on their end. Different lenders might have slightly different requirements depending on the loan program, investor, etc, but the core needs are the same.

Start with a Gift Letter for mortgage. The lender might have a template, or you can find them on the internet but typically the following information is included on the Gift Letter:

  • Name of borrower(s).
  • Relationship to gift giver. Typically a family member is the requirement.
  • Amount of Gift
  • Address of Property
  • Name, current address, phone number of the gift giver
  • Signatures and date signed for gift giver and gift receiver
  • A statement that all parties consider the funds involved a gift from the gift giver and there is no obligation for repayment.

Provide a Paper Trail. This is where the hard part comes in. Lenders need to see how the money is being given to the borrowers. A copy of the account statement for the gift giver that shows they have the funds to give. For example, if the gift is $10,000 from a parent, that parent must provide the full bank statement showing he/she has $10,000 to give. It is best to use cashier's check for the gift. Borrowers make a copy of the check and deposit into their account where the down payment will be coming from at closing. Make a copy of the deposit. Get an activity statement for that account from the date of the last regular statement up to the date of the gift showing the deposit and new balance. The deposit cannot be shown as pending, some banks show it that way for a day or two. If that happens at your bank, get the activity statement through the date where pending is removed.

What about a gifter that does not want to show their statement to confirm they have the money?

Remember when I said I was a parent? I definitely understand the parent who doesn’t want their son/daughter to see their bank information to see how little or how much $$$$ they have. Really it’s not any of their business. But the lender needs this to include the gift in funds available to close. (The lender is going to know about it because there will be a big deposit in the borrower’s account that will require explanation). The parent can send the statement directly to the loan officer and emphasize the parent does not want the son/daughter to see it. In the past when this is offered as solution it works just fine.

What else do we need to know?

Have your lender calculate the cash to close before you ask for the amount of money you think you’ll need. Do this at the point of application. You’ll get a cash to close number. Subtract the borrower’s actual funds from that and the balance should be the amount of the gift.

Start moving the money as soon as possible. Be clear on the document the lenders wants and document as required. Don’t deviate from the documentation requirements without discussing with the lender first and getting agreement that what you are asking is ok.

Don’t spend any money in your account for something you don’t need before you close. Keep your cash balance high as possible.

Hopefully this helps. At least you should know what to expect in general. Check out for live interest rates 24/7!

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