We often get asked what a gift letter is and why is it necessary? Well this blog was created to help understand what a gift letter is and how it can help ease the loan approval process. Let’s dive it!
As most people do in Los Angeles, we all have big plans to buy a big house, but sometimes your down payment isn’t so big. But thankfully you can get a gift for the down payment. You may also choose a gift simply to get the loan to value ratio (LTV) down to 80% to get a favorable Mortgage Interest Rate and/or to avoid Private Mortgage Insurance on a conventional loan.
This is key, as mortgage insurance can be costly and avoiding that can really ease the burden every month.
This also help you win a bidding war if the sellers aren’t all that impressed with your 3% down payment. And trust us, most homes these days get multiple offers and anything we do to strengthen your offer can go a long way.
Whatever the reason, you’ve got options if you have a wealthy or willing family member to help you out. But gifting money isn’t without its own requirements.
Gift for Down Payment
While mortgage loan underwriting requirements vary, most mortgage lenders will allow you to use gift money for a down payment if you’re purchasing an owner-occupied property, one you plan to live in as your primary residence. It can also be an option for a second home, such as a vacation property, but won’t be an option for investment properties (non-owner occupied homes).
Gifts can be used in conjunction with all types of home loans, including conventional, FHA loans, and jumbo loans.
VA loans allow 100% financing, but gifts may still be provided to cover closing costs, or to cover any shortfall in property valuation.
Along with the down payment, this gift money can be used to cover any closing costs you need to pay out of pocket.
Using an acceptable donor
One important caveat to gift money is that it must come from an acceptable donor, not just anybody willing to give you money.
The acceptable list includes the following individuals:
-Anyone related by blood/marriage/adoption or legal guardianship
The list has plenty of options, so it shouldn’t be too difficult to find someone who you can receive a gift from.
If you have any questions about this or anything related to your mortgage, just give us a call 833-403-8230.