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What to Do When You Receive Gift Money for a Down Payment

Learn how to properly document gifted money for a down payment on a new home.

Let’s say a relative give you a nice chunk of money as a gift that will be used for a down payment on a new home. Sounds great, right? While a down payment on a home makes for a far more interesting gift than say, an air fryer, using that money for its intended use isn’t as black and white as you would hope.

The Underwriting Process

To understand why gift money matters in regards to purchasing a home, we have to first understand underwriting. Underwriting is when your lender looks over your credit score, income, and assets to determine if you’re a risk.

Your lender wants to ensure that you’re financially able to pay back the loan. This is why they look at your income and credit history, two strong indicators of how responsible you are with your finances. If a relative gives you a one-time gift of $20,000, for example, the bank cannot assume that you’re going to have access to that type of money on a regular basis. Therefore, they cannot count it as part of your income.

Gift vs. Loan

If a sizable amount of money was given to you from a friend or relative, the bank has no means of knowing whether or not that money was an actual gift or a loan. The distinctive question that must be answered is, “Will this sum of money have to be repaid?”

If the money was indeed intended to be a gift, then the donor must write a gift letter to your mortgage company that clarifies the intent of the gift. The gift letter includes the donor’s name and contact information, their relationship to the client, the amount gifted, the date the amount was transferred to the applicant, and a statement that no repayment is expected.

The Bottom Line

Even after your friend or relative has submitted a gift letter, the lender may still determine that you’re not qualified for the loan and ask for additional documentation, such as bank statements or tax returns. However, if you and your donor are prepared going into the process, then your lender will have everything they need to make an informed decision.

Smith Mountain Lake Market Report

Market Report for SML from January-September 2017 vs. 2018

The market at Smith Mountain Lake continues to show improvement in waterfront home sales, just slightly ahead of last year, which was the best year since the recession.  But, inventory staying high has continued the pressure on pricing and the average selling price of these homes is down.  There are still great selection of homes for sale and the fall is a great time to look, and buy, at the lake. It’s still a struggle for seller of off water homes, condos & townhouses and waterfront lots.  So if you are a buyer in these categories, this is an opportunity to find a great deal.  Call me for a showing appointment!

Real Estate Scams to Avoid

We all like to think that we’re attentive enough to identify a scam before we fall victim, but as technology evolves, thieves are finding it easier to click, copy, and forge their way into our bank accounts. Real estate scams are no exception, and each year bring about a new crop of interesting and down-right debilitating scams that can trick even the savviest of shoppers.

Below are examples of real estate scams to familiarize yourself with so that you know the signs:


A Hacked Closing

You’re preparing for your closing when you receive an email from your real estate agent with a link and instructions on how to wire transfer your down payment. But guess what? Your agent’s email was hacked and you’ve now transferred your down payment to a criminal, who knew exactly when your closing was scheduled.

Protect Yourself By Paying In-Person:  And trust that your real estate agent isn’t going to throw you a surprise curve ball that suddenly involves changing how money will be transferred.


Fake Landlords

This is when a scammer poses as a landlord, creates a fake lease, and advertises the property as a rental. They receive the first and last month’s rent from the victim (usually through wire transfer) and then vanish once the money has been received.

Protect Yourself by Doing Research. Search the address online and see if there is an MLS listing and an agent attached.


Moving Scams

Imagine paying a moving company a few thousand dollars to transport all of your belongings only to have them demand twice the amount before they unload it. Moving company scams are extremely common, and it’s becoming easier to get duped.

Protect Yourself by Getting Multiple Estimates: This will help you determine if the prices that you have been quoted are similar. Ask to sign the receipt before your belongings are loaded onto their vehicles, and purchase insurance just to be on the safe side.