There's nothing better than giving or receiving the gift of a down-payment for a home purchase and this is the perfect time of year to take advantage of potential tax benefits. If you are thinking of gifting someone with a down payment this holiday or you are going to receive a down-payment gift, here is some helpful information.
Before you give or receive the gift of a down payment, please be aware:
- Receive the money as a check or wire transfer versus cash.The gift needs to have a paper trail.
- You will need to provide a gift letter, including: the amount of gift, the relationship of the giver to the borrower, and that re-payment is not required.
- Deposit the gift funds a few months prior to applying for the loan to avoid questions.
- Make sure the gift giver knows the tax laws-cash gifts of over$13,000 are subject to taxes and must be reported to the IRS.
- Depending on the loan type, there may be restrictions on how much of the down payment can be a gift. In many instances,gift funds are allowed for up to 100% of the down payment,but it does vary based on loan parameters. Federal Housing Authority (FHA) loans, popular among first time home-buyers do not have any limits on gift amounts to cover the down-payment. Check with your lender to clarify.
It is always best to discuss any type of monetary gift for the purchase of a home with your lender beforehand. This information was provided by John O'Hara, Senior Loan Originator, Fairway Independent Mortgage, MA MLO License #022397. You can contact John at (781) 719-4679,
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