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Can I use a gift to pay for my down payment?

Check with your lender to see if all or part of the down payment can be covered by a gift from a third person. If you have a relative who is willing to help you with the down payment, get a gift letter from that relative (along with the gift) stating that you do not have to pay back the money. How much of your own money you will need depends on the type of loan you are seeking and the lender's policy (which usually contains a minimum credit score requirement).

If you are using a gift as part of your down payment, ask the lender for the form gift letter it wants you to use. There is no standard form used by all lenders.

A gift letter must contain the following items.

• The names of the donor (giver of the gift) and the donee (receiver of the gift).

• Whether the gift has been given or only promised. The lender may require that it be given before accepting the letter.

• The purpose of the gift (to help purchase the home). The property address is also given in this section.

• A statement that no repayment is required or expected, either in cash or future services. (Although by definition a gift does not have to be repaid, lenders want it emphasized.)

• The relationship of the donor to the donee, such as parent or sibling. The donor may also be a nonprofit organization that helps low-income buyers or those having specific jobs.

• The date and signature of the donor and an acceptance and signature of the donee. Notarizing the signatures is usually not required. If it is, your lender will most likely have a form for you to use.

The lender may also require that the donor disclose the source of the funds, such as the sale of stock, a savings account, etc. There may also be a statement that no party to the sale, such as the seller or real estate agent, is the real source of the gift.

If the lender does not provide a form, use the sample one provided on page 32. Ask the lender to approve it before you get it signed.

Most lenders want you to have at least 5% of your own money in the deal. You will have to show proof that the money is yours, and not borrowed or a gift. Bank statements showing regular deposits to a savings account or a letter from your employer stating that you were paid a bonus are examples of what you may need to show your lender.

Can I use a gift from a stranger to make my down payment?

A fast growing availability of gifts is emerging. Local governments and charities are helping those who cannot afford to buy a home because they lack a down payment. These programs are not just for low-income borrowers.

There are special programs available in some areas for police officers, firefighters, teachers, and others. Many local governments have decided that people with these jobs benefit the community and have made money available to them to buy homes.

You can review down payment gifts by typing "down payment" into any search engine. If you do not have a computer, your local library generally has one for public use. Before agreeing to anything, check with your real estate agent, lender, and local government for gifts that you may be qualified to receive. These programs are often local in nature or specific to certain members of the community, so you need to check in your own area. Beware of companies that advertise that they will find a gift for you, as they may charge you to find the gift that you could easily find yourself.

GIFT LETTER

The following letter contains the general requirements for a gift letter. It may contain more than you need. Remember to ask your lender for its specific requirements for your gift letter.

Name(s) of donorfs) _____________________________________

Name(s) of donee(s), herein called recipient(s) ________________

Relationship of donor(s) to recipient(s) _____________________

I/We, the abovenameddonor(s), (have given/will give) to the above named recipient(s) the sum of $ ___________________________.

This gift is to be used for the purchase of the property located at:

Street address __________________________________________

City ______________________ State _______________________

Zip code __________________

No repayment is required, expected, or implied, either in the form of cash or future services.

Source of funds:

Bank ___________________ Branch address _________________

Account number ________________________________________

Other source (explain) ___________________________________

______________________________________________________

No portion of this gift has been given by anyone who is a party to or associated with the sale of the above described property.

Recipient(s) accept(s) this gift as evidenced by the signature(s) below.

Executed this _______ day of ______________ , 20 ____________

Name of Donor ______________ Name of Recipient

__________________________________________

Name of Donor Name of Recipient

Address of Donor:

Street __________________________________________________

City _____________________ State _________________________

Zip code _____________________

Telephone: Area code ( ) Number______________________

 
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