Wednesday, November 15, 2006

Gifted Down Payments

So Mom & Dad are finally coming through and giving you the down payment for a brand new New York City apartment. That's great! There's a couple of things to be aware of when applying for a mortgage with a gifted down payment.

In a perfect world, you would receive the gift funds at least 3 months before you plan to purchase the apartment. Underwriting rules for full documentation mortgages require that a borrower show 2 months (occasionally 3 months) of your most recent bank statements showing enough liquid cash for the down payment and the closing costs with no large deposits. A large deposit is defined as any unusual deposit greater than 2% of the purchase price of your apartment. So if mom and dad kick down the cash after you've signed the contract of sale, you may not qualify for a full documentation mortgage since there will definitely be a large deposit in your bank account.

This would also be the easiest way to get around the asset requirements required by the Board of Directors in a cooperative purchase.

If they just can't part with the money until they are sure you aren't going to spend it recklessly at Barney's and the Darkroom, then you'll have to be prepared to document the down payment as gift funds.

This is done by having the donor (mom and dad in this case) sign a statement that they are giving you the money and will not require it's repayment. Additionally they will have to show 2 months of the bank statements of the account that they emptying to give you the funds to prove their ability to give the money without you having to pay it back. I find that parents rarely want to comply with this last step.

So the best move is to either have an extremely high credit score to override the showing of assets or prove to mom and dad that you can handle having the money in your bank account for a few minutes without running to the Nike store.

There is another sneakier way too. Simply put your name on mom and dad's nest egg account that holds that precious down payment money making it a joint account in your name as well as theirs.

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