Using Gift Money for a Down Payment in Kentucky For A Mortgage Loan

Can a family member help you come up with the down payment for a mortgage? If so, are there any limits on how much they can provide or other restrictions?


The answer is yes, in both cases. In today’s economy, many potential home buyers, young people in particular, are looking to their parents or other relatives for help in coming up with money for a down payment.

Advantages of a larger down payment

A larger down payment can make it easier to get a mortgage, make it possible to get a larger mortgage than you would otherwise have qualified for, or reduce the interest rate on your home loan, so there are a lot of benefits to using gift money for a down payment. There are certain limitations, however, so you want to be aware of them before you get started.

Do all lenders allow gift money for a down payment?

In most cases, it’s ok with lenders to use gift money from a family member to make a down payment. The FHA allows down payments of as little as 3.5 percent, and all of it can come from a gift, while Fannie Mae, VA and USDA Rural Development allow down payments fully funded by gift money as well.



If you’re getting a mortgage backed by Freddie Mac, however, you need to put up at least 5 percent of the purchase price out of your own money if the down payment is less than 20 percent. However, you can use gift money to increase your down payment, perhaps doubling it to 10 percent for example, and you can use gift money for the whole thing if you’re putting up 20 percent or more.



One problem is that, when getting a conforming loan, you rarely know up front if your lender plans to sell your loan to Freddie Mac or its sibling, Fannie Mae. So if you’re planning to use all gift money for your down payment, try to find a lender who deals primary with Fannie Mae, unless you’re applying for an FHA, VA or USDA loan.

Can you borrow down payment money from relatives?

Documenting Your Assets for A Louisville Kentucky Mortgage loan down-payment-


In a word – no. In fact, when putting up gift money for a down payment, you need to provide a statement from the giver that the money does not need to be repaid. The reason for this is that your down payment is supposed to be your own money, free and clear, with no strings attached. If it has to be repaid, even to a relative, that increases your debt burden and affects how much a mortgage lender is willing to lend you.

How much can they give you?

As much as they want or are able to. However, in practical terms, most gifts are limited to $13,000 – that’s how much the IRS allows one person to give another each year without incurring the gift tax. That amount doubles to $26,000 if the gift is given to you and your spouse, and can even increase to $52,000 a year if your parents file their taxes separately and each give gifts to you and your spouse.



The gift tax isn’t something you pay as a recipient – the gift is tax-free to you. From the IRS’ perspective, gifts are a form of early inheritance, so any amount above the $13,000 annual individual limit (up to $5 million lifetime) is taxed on the giver, same as an estate tax would be. That’s also why the gift isn’t tax deductable for the giver, since it’s considered an early payout from their estate.



If you’re fortunate enough to have family members who are able and willing to help you financially, gift money for a down payment can be a big help in buying a home. However, just make sure you know the rules going in so you don’t run into problems during the process.















Joel Lobb (NMLS#57916)

Senior Loan Officer

American Mortgage Solutions, Inc.
10602 Timberwood Circle Suite 3
Louisville, KY 40223

Company ID #1364 | MB73346

Text/call 502-905-3708

kentuckyloan@gmail.com


If you are an individual with disabilities who needs accommodation, or you are having difficulty using our website to apply for a loan, please contact us at 502-905-3708.


Disclaimer: No statement on this site is a commitment to make a loan. Loans are subject to borrower qualifications, including income, property evaluation, sufficient equity in the home to meet Loan-to-Value requirements, and final credit approval. Approvals are subject to underwriting guidelines, interest rates, and program guidelines and are subject to change without notice based on applicant's eligibility and market conditions. Refinancing an existing loan may result in total finance charges being higher over the life of a loan. Reduction in payments may reflect a longer loan term. Terms of any loan may be subject to payment of points and fees by the applicant Equal Opportunity Lender. NMLS#57916http://www.nmlsconsumeraccess.org/

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Documenting Your Assets for A Louisville Kentucky Mortgage loan downpayment-

Documenting Your Assets for A Louisville Kentucky Mortgage loan downpayment-

When buying a home, it is not enough to just "come up" with the money. With the exception of "no asset verification" loans, lenders want to verify where the money comes from. If you can document the funds comes from your personal savings, the lender is more confident of your strength as a borrower. 

In addition, if you can verify you have additional assets that are not needed for the down payment, it is important to document those, too. Additional assets are "reserves" you can draw upon during times of trouble, such as unemployment, medical emergencies, and similar occurrences. Additional assets can also help to document that you have a history of saving money, which makes you a more dependable borrower.

It is extremely important to completely document the paper trail of any funds you use for down payment and closing costs. The sections below provide guidance on both verifying assets and documenting them as a source of your down payment.

Checking, Savings, & Money Market Accounts

The quickest and easiest way to document funds in your bank account is to provide your lender with copies of your most recent bank statements. Most lenders request two months bank statements, but some still ask for three. Some lenders still send a "Verification of Deposit" to your bank in order to determine your current bank balances and average balance for the last two months. However, that is the old way of doing business and most lenders nowadays prefer to have bank statements.

If the money you are using for the down payment and closing costs has been in the bank for the entire period covered by the bank statements, you're fine. These are known as "seasoned funds." However, if your statements show any large or unusual deposits the lender will ask you to explain them and document their source.

Stocks, Bonds, Mutual Funds, etc.

Most of those who own stocks get a monthly or quarterly statement from their brokerage. You will need to supply statements for the most recent sixty or ninety days in order to document these assets.

Though it is rare nowadays, some people actually have stock certificates instead of having a brokerage account. When this is the situation, make copies of the certificates and provide those copies to your lender. You might also want to supply tax records to indicate you have owned these stocks for some time.

If part of your down payment will come from the sale of stocks and investments, you will need to keep all documentation that applies to the sale. Provide these copies to your lender as well.

Gifts

Especially when buying a first home, some borrowers need help coming up with the down payment. This help should come in the form of a gift from a close family member. Lenders will require the donors to sign a special form called a "gift letter." The gift letter states the relationship between the parties, the address of the purchased property, the amount of the gift, and sometimes the source of the funds used to make the gift. The gift letter also clearly states that the funds are a gift and not required to be repaid.

With most lenders, the donor will have to also provide evidence that they have the ability to make the gift. This can be in the form of a bank or stock statement to show they have the funds available. You should also make a copy of the check used to make the gift and keep a copy of the deposit receipt when you deposit the gift funds into your bank account or escrow.







401K or Retirement Accounts

It is important to provide documentation about your retirement accounts or 401K programs because this is another asset you could draw upon as reserves in case of a problem. It is also another way to show you have a savings history. Just provide a copy of your most recent statement to your lender.

Many people use these accounts as a source of funds for their down payment, too. Some employers allow you to "cash out" a portion of the 401K and some allow you to borrow against it. Be sure to keep copies of all paperwork involving the transaction. If they cut you a check, be sure to make a photocopy of that, too, including any receipt for deposit into your personal bank account.

If you are borrowing against your 401K, some lenders will count this as an additional debt to go along with car payments, credit cards and other obligations. This may seem kind of silly because you are borrowing your own money, but from the lender's viewpoint it is still a monthly obligation that you must come up with and should be taken into account. If you are "tight" on your debt-to-income ratios in qualifying for a home loan, this could be an important consideration. It may affect whether you choose to cash out the account and pay any tax penalty, or simply borrow against it.

Employers

Some companies provide down payment assistance for their employees. They may feel that Homeowners are more stable and reliable employees, or that providing down payment assistance fosters an environment of higher morale and loyalty to the firm. Just make copies of all the paperwork, including a copy of the check and the receipt when you deposit the funds into your personal bank account. It is important that these funds do not require repayment.

Savings Bonds

If you have Savings Bonds, they are a financial asset, too. Since you hold the actual bonds in your possession, the easiest and best way to verify them for your mortgage lender is to make photocopies of them. If you choose to cash them in for down payment or closing costs, you should do this at your local bank. Be sure to keep copies of the paperwork the bank provides because that will establish the current value of the bonds and show that you received their cash value.

Personal Property - Cars, Antiques, etc.


Personal property includes automobiles, vehicles, boats, furniture, collections, heirlooms, antiques, art, clothing, and practically everything you own except for real estate. The mortgage application asks you to estimate the value for these items.

The larger the loan amount, the more important it is for you to provide details on your personal property. This is because larger loans usually indicate larger incomes, and lenders check to see if your personal property matches your income. If it does not, this sends a "red flag" to the underwriter and they take a closer look at your application.

You are not required to document the value of personal property unless you intend to sell them to come up with your down payment.

Selling Personal Property

For those Homebuyers who do sell personal property in order to come up with their down payment, the verification process can be arduous. Lenders are much stricter about documenting this method of coming up with your source of funds.

Selling a car is perhaps the easiest to document. First, you need to photocopy the registration that shows you actually own the vehicle. You will have to provide a copy of the page in the "Blue Book" that shows your model and its value. Then you need to photocopy the bill of sale showing the transfer to another individual and a copy of the check used to purchase the vehicle. Do not get paid in cash because that makes it impossible to show you actually received the funds. Make a copy of the receipt when you deposit the funds into the bank.

Other types of personal property are more difficult because you have to show that you actually own the property and that it actually has the value that you sold it for. This is a little harder to do for most assets than it is for automobiles.

If you have records to show you purchased the property, that would be helpful. You could also provide an old inventory that documents ownership. To determine value, you may have to contract with an independent appraiser or a specialist who has the knowledge for that particular type of property.

If you cannot document the item's value, the lender will not view the sale as an acceptable source of funds. Just like selling a car, you have to prove you own the item, make a copy of the bill of sale, copy the check used to purchase the item, and make a copy of your receipt when you deposit the funds into your bank. 

Joel Lobb (NMLS#57916)Senior  Loan Officer
502-905-3708 cell
502-813-2795 fax
jlobb@keyfinllc.com

Key Financial Mortgage Co. (NMLS #1800)*
107 South Hurstbourne Parkway*
Louisville, KY 40222*

http://mylouisvillekentuckymortgage.com 

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How long do interest rate locks last on a Kentucky mortgage loan?

Q: I am pretty sure I already know the answer to this question but here it goes anyway. My wife and I plan to move into a different house/condo in two years. Is it possible to lock into a rate now that would hold for a couple years? What is the maximum time limit to hold a rate lock?

A: That’s a great idea! We wish we could lock in these interest rates for two years or even more, but most lenders’ interest rate locks are for 30, 45, 60 or 90 days. Frequently, you get the lowest interest rate with the shortest rate lock. You can call around and see what lenders in your area are offering, but it’s unlikely that you’ll find any lender willing to give you a rate lock that extends past those days.

In some new-construction scenarios, home builders will work with lenders to offer their home buyers a longer rate lock period. While the costs for the longer term rate lock may be absorbed by the builder, that builder then knows that the buyer has been approved for a loan and that the loan interest rate is somewhat certain. This certainty would mean that the buyer should be able to close on the loan without issues.

When new-construction buyers sign a contract for a home, the home might not be delivered for a year or so. That home buyer may be able to afford the home given today’s interest rates but not tomorrow’s if rates go sky high. Typically, builders get a preferred lender to offer a type of loan product that would allow the rates to go up a tad but would give the home buyer the benefit of a lower interest rate if rates drop down.

But we haven’t seen a two-year rate lock, even in a new home building scenario. Having said that, some lenders will allow you to buy a rate lock so you might find a lender willing to give a 365 day rate lock or even longer, but that lender will charge you a fee (sometimes it’s significant) to lock that rate.

From your standpoint, you have to determine whether the cost of locking the rate is worth it. We can’t tell you what a lender would charge for the lock, but we know that the longer you want to lock in the rate the higher the fee. And, if you add that to the annual cost of the mortgage, it’s going to push that super-low rate a lot higher.

Here’s the thing: If you look all the way back to 1993 (according to Freddie Mac data), when mortgage interest rates fell a bit below 7% for the first time since 1971, we’ve had incredibly low interest rates. Over the past 10 years, mortgage interest rates have barely been above 5 percent. According to Freddie Mac data, the last time they were over 5 percent, was April 2010.

In other words, it’s likely that interest rates will still be low in two years, and if they’re not, you can refinance when they fall again. That’s the smart move.

https://www.heraldtribune.com/business/20200411/real-estate-matters-how-long-do-interest-rate-locks-last

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Mortgage Forbearance: Guidelines for Homeowners - NerdWallet

Mortgage Forbearance: Guidelines for Homeowners - NerdWallet




FORBEARANCES AGAIN

I am still getting a lot of questions in regard to forbearances so I am going to repeat and update some information.

• Who Qualifies for Forbearances? Anyone suffering financial hardship b/c of the COVID-19 crisis. Some servicers will take the borrower’s word but many will request “proof” of some sort. Borrowers who are not in financial peril should be careful about claiming they are, as they risk fraud charges.
• How Do I Obtain a Forbearance? Borrowers need to contact their servicer and apply for it. They should not simply stop making payments.
• Do I Have to Pay Back Missed Payments? Yes – without a doubt. Some servicers will want all of the missed payments repaid as soon as the forbearance ends; some will want to restructure entire loans; and some will want to set up repayment over a period of months. Servicers will most likely try to work out the repayment system when borrowers apply for forbearances.
• Does It Matter What Type of Mortgage I Have? Yes. Forbearances will be easier to obtain for conforming (Fannie/Freddie), FHA and VA loans. Jumbo and non-QM borrowers, however, will have a more difficult time obtaining forbearances b/c the government does not have as much influence over those channels.
• How Will a Forbearance Affect My Credit? If borrowers obtain a formal approval for a forbearance, it should not affect their credit. If borrowers just stop making payments, however, without getting an approval from their servicer, it will likely impact their credit – severely. There is a caveat here too: while credit reports will not show late payments when borrowers get their forbearances approved, future lenders will be able to see if a borrower obtained a forbearance in many cases, and that could affect credit decisions. This is something we saw with loan modifications after the 2008 crisis.
• Should I Go Through With My Purchase or Refinance If I Am Likely to Seek a Forbearance? Absolutely not. Not only will it be extremely difficult for borrowers to obtain a formal forbearance approval for a recently funded loan, missing payments on newly funded loans put the originating lender in extreme financial peril.

Here is a short article from Nerd Wallet with additional

info.https://www.bankrate.com/mortgages/everything-you-should-know-about-mortgage-forbearance/

CARES Act Mortgage Forbearance: What You Need to Know— consumerfinance.gov