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Using Gift Funds for Down Payments and Closing Costs – A Primer

May 1, 2023 / Tom Bonetto

When it comes to buying a home, one of the biggest obstacles for many buyers is the down payment. But did you know, borrowers can use gift funds for that down payment?

Believe it or not, many homebuyers turn to family and friends for financial help.

25% of homebuyers ages 23 to 31 and 17% of those ages 32 to 41 received gifts from relatives or friends to help with their down payment, according to the National Association of Realtors.

Secondly, down payment requirements are much different today than they have been in the past, as FHA loans and some conventional loans often have low down payment requirements, as little as 3% in some cases.

And, yes, borrowers can absolutely use gifts from family members toward those down payments!

Who Can Gift Down Payment Funds?

Lending regulations won’t allow borrowers to use a cash gift from just anyone to qualify for a mortgage. The funds usually must come from a family member, such as a parent, grandparent, or sibling.

It’s also generally acceptable to receive gifts from your spouse, domestic partner, or significant other if you’re engaged to be married.

Restrictions on Down Payment Gifts

Both conventional loans and FHA loans allow gifts as down payments. There is no minimum borrower “contribution” for a one-unit, primary residence, even when bringing in less than 20% down for conventional loans.

House Made of Puzzles Pieces with Money Printed on It

That gift can cover the entire down payment and the closing costs.

For 2-4 unit primary residential properties, the borrower must make a 5% minimum borrower contribution from their own funds, per lending regulations for conventional loans. FHA loans do not have this requirement.

After the minimum borrower contribution has been met, gifts can be used to supplement the down payment, closing costs, and reserves.

It’s important to know that gift funds may NOT be used for investment property purchases.

Mortgage Gift Rules by Loan Type

FHA loans: The Federal Housing Administration (FHA) backs mortgages with a minimum down payment of 3.5 percent. The entire amount can be gifted, but the FHA requires a letter and supporting documents from the gifting party. Bank/asset statements showing the giver has had the funds for 60 days will be required.

Conventional loans (Fannie Mae/Freddie Mac): When purchasing a single-family residence, the entire down payment can come from a gift. These funds can come from a relative, employer, close longtime friend, or a nonprofit. Freddie Mac also allows borrowers to use wedding gifts, so long as you provide a copy of your marriage license.

VA loans: The U.S. Department of Veterans Affairs (VA) guarantees home loans for eligible military borrowers. VA loans require no down payment, but VA guidelines allow borrowers to put gift funds toward closing costs or a down payment, if they so choose. The documentation rules are similar to those of FHA loans.

USDA loans: The U.S. Department of Agriculture (USDA) guarantees no down payment-mortgages to borrowers with low to moderate income in rural corners of the country. Like the VA loan program, gift money can be used to pay closing costs. Borrowers must provide a gift letter and supporting documents consistent with the gift letter rules of other loan programs.

Documenting a Down Payment Gift

Lenders require the borrowers to provide some detailed documentation any time a down payment gift is used. Specifically, the borrowers will need to produce a letter which includes the name of the donor, their relationship, the date and amount of the gift, and a statement that says the money has no expectation of repayment.

Both parties will need to sign the letter and the lender may also require additional documents. For FHA loans, borrowers will need to show copies of the donor’s bank statements to prove that they’re actually in a position to make a gift.

In Conclusion

If your family decides to help you out with a down payment gift, you as the recipient should be extremely grateful.

However, like any large financial move, there are some rules and regulations to consider. So please do reach out to me for more, as it would be my pleasure to help you structure your loan and down payment options.

Real Estate Buying Activity Picking Up – April 2023

April 17, 2023 / Tom Bonetto

MBS Highway’s April 2023 Housing Survey showed another solid increase in buying activity as the spring selling/buying season kicked into high gear. This marks the 4th-straight month of improving sentiment.

68% of respondents characterized their market as ‘active’ and 33% of respondents indicated that they were now seeing price increases.

This uptick in activity will lead to an increase in home prices, as supply is still extraordinarily low, based on historical norms. Reach out to me for more information…

From Fragile to Fearless: How to Build Unbreakable Toughness

April 12, 2023 / Tom Bonetto

Baseballs and a Player in the Background

As parents and coaches, we have a unique opportunity to help our athletes develop skills and traits, both on and off the field.

And mental toughness is one of the key characteristics that should be on everyone’s focus list.

“Building toughness and focus in youth athletes requires a multi-faceted approach that includes physical conditioning, mental training, teamwork, and selflessness.” Brad Myott, Nitty-Gritty Baseball

I’m linking to a great article for coaches and parents from Brad Myott at Nitty-Gritty Baseball and I’d invite you to check it out here…

A few excerpts:

Model a Growth Mindset

A growth mindset is the belief that one’s abilities and intelligence can be developed through hard work, practice, and perseverance. In contrast, a fixed mindset is the belief that one’s abilities and intelligence are fixed traits that cannot be changed. In order for our player’s to develop a growth mindset, we must model it for them on a consistent basis.

Set Challenging Goals

Setting challenging but achievable goals can help build toughness in young athletes by providing them with a sense of purpose and direction. Encourage your players to set goals that are specific, measurable, and challenging, and help them create a plan to achieve those goals. Celebrate their progress along the way and help them stay motivated and focused on their goals.

Practice Mental Toughness Through Mindfulness

In recent years, mindfulness has gained popularity as a tool for promoting mental health and well-being. However, its benefits extend beyond stress reduction and relaxation; mindfulness can also help youth athletes build mental toughness. By learning to focus their attention and regulate their emotions, athletes can develop greater resilience, confidence, and perseverance on the field.

Again, I highly recommend that you view the entire article here…

Don’t Believe the Negative Media About Home Price Declines

March 28, 2023 / Tom Bonetto

ABC News with Title of Mortgage Market Red Flags

In many ways, our mainstream media is not truly interested in digging deeper for the facts and truth.

They really are about trying to gain and keep viewership with shock headlines.

For example, the breathless reporting about the latest Existing Home Sales report showed that the median home price declined on an annual basis for the first time in almost 11 years!

Big headline, right?

First of all, the decline was only 0.2% – and it was for the median home price, which is NOT the same as appreciation.

FHFA’s latest appreciation report showed that home prices rose 5.3% year over year. Here’s the chart:

And according to Case-Shiller, they rose 3.8% year over year. These are the two best ways to measure home price appreciation.

So, what’s the difference between the median home price and actual appreciation?

The median home price is the middle price point of homes sold. If more lower-priced homes are sold versus more expensive-priced homes in a given month, it will skew that median home price down.

Cartoon Graph with House in the Background

In fact, the median home price can move lower even when home prices are appreciating, depending on the mix of sales.

But the media is making a big deal about this data, trying to scare people out of buying a home.

That’s what they’ve been trying to do for the past ten years, and they’ve been wrong every step of the way.

Don’t listen to the negative media. Home appreciation, while modest, should be strong in the year ahead.

Reach out to me today and learn how you can benefit, as it would be my pleasure to help!

Real Estate – A Tremendous Investment

March 21, 2023 / Tom Bonetto

Chart of Change Percentage from 1942-2008

Real estate has proven to be one of the most profitable and least risky long-term investments.

Since 1942, there have been 73 years of property value increases versus only 7 of value decreases – an absolutely unbelievable statistic!

Here’s the chart that shows the specifics (courtesy S&P/Case Shiller):

This just goes to show you that real estate is one fantastic investment.

Paying It Down AND Appreciation

Homeowners, unlike renters, benefit from the capital appreciation in their property. Not only are property owners paying down the amount that they owe on their mortgage each month, they are also realizing an increase in the value of their homes nearly every year.

That’s why real estate has been featured as one of the best performing asset classes ever.

The steady growth in the price of property all across the United States means that people benefit from the wealth effect created by an ever-increasing property market.

Supply and Demand

Presently, the United States is suffering from a shortage of housing in many states across the country. That will only increase the value of real estate – and you can find more about that here…

Secondly, real estate is an incredible hedge against inflation. As the cost for goods and services increases, so does real estate, often far faster than the rate of inflation.

An All-Around Winner

Investing in real estate is a prudent long-term investment strategy, no matter where you live. Studies show that real estate is one of the top-performing asset classes across all categories, outperforming other hard assets like precious metals in returns.

Please do reach out to me for more, as it would be my pleasure to help you with your long term investment strategy!

The Lending Coach