Down Payment Loans and Gifts
Loans and gifts can help with your down payment but you can not use this strategy for all loan programs. The most popular program for this tactic is the Federal Housing Administration or FHA. FHA allows 100% gift funds for your down payment. The gift can be from any relative or can be collected through new innovative programs, like the Bridal Registry where couples receive money into an account that can be used for the down payment.
Another popular tactic, which can be used in a wider range of programs, is to borrow from your 401K program. If you have a 401K program with your employer, you can withdraw without a penalty for your down payment and pay it back over a specified period. There are some drawbacks, the payment will be used in qualifying and your 401K account will not continue to grow as fast. Even with these drawbacks, it is often a smart move if this is your only option.
Gift programs are available to first-time homebuyers, low- and moderate-income individuals and families who wish to achieve homeownership.
Any time money is obtained from a loan for a down payment this new loan needs to be calculated into your debt to income ratio. This applies to any loan whether it is borrowing against your own 401k, a personal loan, or a home equity line of credit on another property.
Often a lender will only allow a percentage of the down payment to come in the form of a gift. Depending on the lender it can be as low as 5%.
For any gift funds used toward down payment, you must provide documentation that the funds are indeed a gift and not a loan that must be repaid. Your loan officer can help you with this.
There is even a gift program that allows people to sponsor a CD for you. The benefit with this program is that the person making the deposit will retain their money, and gain interest on the investment. Talk to your mortgage professional about this program.
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