When buying a home, it can help a borrower’s purchasing power if they’re able to put down a down payment, as Best Home Nerd said. In its simplest form, the more money a borrower is able to put down on a purchase, the less of a “risk” to the mortgage company who’s financing the rest.
Many times, the down payment comes from family members, which is a pretty awesome gift. But, it’s important to know just HOW to receive that money – it’s not as simple as Grandma writing you a check.
Dan Green of The Mortgage Reports has a great blog post on this, and I’d encourage you to head over and read it in its entirety – linked here. If you want the highlights, here goes:
- Write a Gift Letter – this is a letter stating the amount of the gift, the relationship of the person giving the gift to the person receiving the gift, the property address, and that the money is a gift, not a loan, and will not be repaid.
- What the Giftor needs to do – Keep a paper trail. Write the check, while photocopying everything and keeping duplicate copies.
- What the Giftee needs to do – Take the check to the bank (Dan says don’t do a mobile deposit), deposit it, and keep the receipt.
Again, Dan’s post goes into great detail, both with the idea of using gift monies as a deposit, as well as what the tax consequences might be, and more. I’d encourage you to read it if you’re considering giving, or receiving, gift money in order to purchase a home.