Tag Archives: home-buying

01/16/2025 · 7:41 pm

Using Gift Funds For The Down Payment on your Home

In today’s market, more and more home buyers are getting assistance with their down payment in the form of gift funds from friends and family. According to a recent study, in 2023, 39% of home buyers who financed their home with a mortgage loan used gifted funds as at least one source for their down payment, up nine percentage points from 2018. While it’s great to have help, there are rules around financial gifts that you need to know in order to smoothly navigate the process.

What is a down payment gift?

Down payment money is considered a “gift” when people, usually friends or family, financially contribute money that will help the home buyer pay for a down payment on a home. there is generally no limit on how much a borrower is allowed to receive as a gift

Who is eligible to Gift you down payment money?

Depending on the loan type, gifts can come from the buyer’s relative, employer, or close friend with a “clearly defined and documented” interest in the borrower, or a charitable organization, governmental agency, or a public entity that has a program providing home ownership assistance for low and moderate-income families or first-time home buyers. However, donations for down payments cannot come from people who are directly affiliated with the home buying transaction which includes builders, developers, or real estate agents.

What are the rules for mortgage down payments?

For Fannie Mae backed loans, a minimum borrower contribution from the borrower’s own funds is not required. This means that 100% of the money that is needed to make up the down payment can come from a gift. On the other hand, with FHA loans, the borrower is required to provide a minimum personal cash investment of at least 3.5% for the down payment. regardless of the loan type, gift funds must be a “bona fide gift,” and not a loan that requires repayment.

While there is no limit to how much money you can accept as a gift for a home down payment, when you’re going through the mortgage loan application process, you’ll need to make sure that you have proper documentation of the gift money in the form of a letter, with specific requirements outlined by your lender, from the donor of the funds. this is required to show your letter that you don’t owe someone a large sum of money that you won’t be able to pay back on top of your monthly mortgage payment.

Contact me if you have any questions

Gena Glaze

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01/05/2024 · 11:39 am

What is a 2-1 Buydown?

Sellers, including home builders, will sometimes use 2-1 buydowns as an incentive for potential purchasers

A 2-1 buydown is a concession or incentive negotiated with a seller or builder that temporarily reduces a buyer’s mortgage interest rate by 2 percentage points the first year and 1 percentage point the second year of your mortgage. The third year the interest rate goes back to the fixed rate obtained from the lender.

  • A 2-1 buydown is a type of financing that lowers the interest rate on a mortgage for the first two years before it rises to the regular, permanent rate.
  • The rate is typically two percentage points lower during the first year and one percentage point lower in the second year.
  • Sellers, including home builders, may offer a 2-1 buydown to make a property more attractive to buyers.
  • 2-1 buydowns can be a good deal for homebuyers, provided that they will be able to afford the higher monthly payments once those begin.

Lenders charge an additional fee to make up for the interest that they won’t be receiving in those early years. A homebuyer or seller can pay for a buydown. That payment may be in the form of mortgage points, or a lump sum deposited in an escrow account with the lender and used to subsidize the borrower’s reduced monthly payments.

The 2-1 buydown is sometimes offered as an incentive and sometimes it is part of the buyer’s negotiations.

Example

Suppose a new home builder is offering a 2-1 buydown on its new homes. If the prevailing interest rate on 30-year mortgages is 6% for a particular buyer, this homebuyer could get a mortgage that charged just 4% in the first year, then 5% in the second year, and 6% starting in year three and continuing through the remaining years. The reduced payments in those first two years can result in substantial savings.

Gena Glaze

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Filed under Home Buying (For Buyers), Learn Real Estate Terms, Mortgage Info

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