Merry Christmas, homebuyer! Don’t cash Mom and Dad’s check yet! Your loan could be denied if the money isn’t carefully documented.
Why? Gifts can cause confusion. Is your parents’ money a gift or a loan? Unless the terms are clearly defined, don’t mix the gift with your own funds. It alters your bank statements and raises your income both of which could muddy your financial picture.
Lenders require a paper trail for all monies, so no phone deposits. They also limit the size of gifts in relationship to the total down payment. Some loan programs require the borrower to contribute at least 3% to 5% of the down payment if the down payment is less than 20%, while other programs allow the entire down payment to be supplied by a gift.
To avoid questions, provide a certified down payment gifts letter or sign an affidavit that explain:
- The amount of the gift, accompanied by a corresponding cashier’s check, including a photocopy of the check
- The name and address of the gift-giver and relationship the gift-giver has to the homebuyer
- The purpose of the gift – to be used only as a down payment on the subject property, complete with the property’s address
- A statement confirming that the gift is not a loan, and does not need to be repaid
- Signatures of the borrower and the gift-giver
If you’re planning to use a gift as part or all of your down payment, ask your realtor how to meet all the appropriate requirements regarding down payment gifts.
About Jumbo Loans
Each year, the Federal Housing Finance Agency (FHFA) publishes conforming loan limits for all loans eligible for purchase and guarantee by government-sponsored entities Fannie Mae and Freddie Mac. The current limits are $424,100 and $636,150, or higher, depending on housing costs in U.S. counties or territories. Jumbo mortgages are simply loans that exceed conventional limits.
Jumbo mortgage are non-conforming loans designed for the purchase of single-family luxury properties or homes in high-cost areas. They’re only available for owner-occupied homes, not vacation or second homes, or investment properties.
Without federal guarantees, lenders require unique qualifying and loan underwriting standards. Borrowers must have credit scores of 700 or above in order to lower their down payments to as little as five percent down. Income-to-debt ratios must fall between 36 percent and 43 percent, and borrowers must show liquid reserves equal to three to 12 months of mortgage payments, depending on the loan amount.
Lenders may have other requirements, and the final loan product must meet the Consumer Financial Protection Agency’s standards for a “qualified” mortgage. For example, a borrower who puts five percent down may be limited to a $1 million loan, while another borrower obtains a $2.5 million loan with 10 percent down. With 20 percent down, a $3 million mortgage is possible.
There are many advantages to obtaining a jumbo loan. Interest rates can approximate or equal those of conventional loans for qualified borrowers and can be deducted from federal income taxes on loans up to $1 million. As always, please consult your tax professional before making these decisions.
Contact our local BHHS Hodnett Cooper Real Estate Team to learn more!
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