Did you know most loan programs in Idaho allows a borrower to receive money in the form of a “Gift” from certain individuals that can be utilized for Downpayment, Closing Costs or Asset Reserves!
Below is the rules and guidelines which a borrower must follow in order to receive a gift for purchasing a home in Idaho
Gift Funds
A principal residence or second home borrower may use funds received as a personal gift from an acceptable donor to pay closing costs or to supplement his or her financial reserves. The borrower generally must use his or her own funds to make the required minimum cash down payment, although that down payment may be supplemented with a gift. Gifts are not allowed for investment property transactions.
Reason for all of this paperwork?
Unfortunately in the past, gift funds have come from illegal activity and are used to launder money. These monies have come from drug proceeds in other states, then utilized to purchase homes, say in Boise, Idaho. So the government has required that all monies coming into a home buying transaction needs to be “Sourced” and “Seasoned”
Think of it this way: A person can legally sell a pound of marijuana in the State of Colorado, or Washington or Oregon or California. But here in Idaho, this is still an illegal drug. A person would not be able to utilize the money from the sale in Idaho.
We are NOT saying that everyone is a drug dealer, but under the Federal Laws, that regulate real estate transactions, we have to be fair and treat all people equally.
More information can be found on the following Government Web Site: www.fincen.gov
Acceptable Donors
A gift can be provided by:
The donor may not be, or have any affiliation with, the builder, the developer, the real estate agent, or any other interested party to the transaction.
Minimum Borrower Contribution Requirements
If the gift is more than 20% of the sales price, the lender must document that the borrower contributed his or her own funds equal to at least 5% of the purchase price of the property.
This requirement does not apply to the following:
Exceptions to the Minimum Borrower Contribution Policy Regarding Gifts
Fannie Mae permits borrowers to use gift funds for some or all of the minimum contribution in the following situations:
Documentation Requirements
Gifts must be evidenced by a letter signed by the donor, called a gift letter. The gift letter must:
1st Choice mortgage has Approved Gift letters on hand to assist in this.
When a gift from a relative or domestic partner is being pooled with the borrower's funds to make up the required minimum cash down payment, the following items must also be included:
Verifying Donor Availability of Funds and Transfer of Gift Funds.
The lender must verify that sufficient funds to cover the gift are either in the donor's account or have been transferred to the borrower's account. Acceptable documentation includes the following:
IRS Tax Ramification to the Gift or.
Individuals who are gifting money to the borrower also need to consult with their CPA and the IRS. Each year, the IRS sets out a specific limit on how much an individual can gift. Any amount above this limit could be potentially taxable. Below is a link to the IRS web site which lines out gifting. As always, we highly recommend that a gift or consult with their CPA or a Tax Professional:
IRS Link on Gifts: https://www.irs.gov/businesses/small-businesses-self-employed/frequently-asked-questions-on-gift-taxes
LENDERS TYPICALLY REQUIRE THAT THE GIFT FUNDS BE IN THE BORROWER'S ACCOUNT AND VERIFIED ATLEAST 10 DAYS PRIOR TO CLOSING.
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