'Tis the Season For Giving
We've all heard the phrase, "the gift that keeps on giving." This holiday season, we'd like to share a unique gift idea that truly exemplifies this concept.
With current low interest rates, more and more people are finding that it's a great time to buy a new home. However, there's one hurdle that often stands between buyers and the house they want: the down payment. Most lenders require a down payment of at least 20%; but few buyers have that kind of cash lying around to put down on a new home.
That's why many turn to family members for help.
If your adult children or elderly parents have found themselves in this situation, perhaps they've come to you for assistance with their down payment; and you're happy to oblige them. But did you know that special documentation is required in these situations? Lenders want to be sure that buyers aren't taking on more debt than they will be able to repay. So when money is given from a family member to a buyer, it must be in the form of a gift, rather than a loan that has to be repaid. Otherwise, it will be seen as additional debt on the buyer's part that will affect his or her ability to repay the home loan.
Enter the Gift Letter. This letter verifies that the money is given as a gift by a true family member. Many loan application packages include a Gift Letter form that is used to document the source of the money and that it is not an additional loan.
As the one giving the gift, you are also entitled to certain benefits. A 2010 tax act allows a $5 million estate tax exemption for both you and your spouse. If you give a gift that goes beyond the $13,000 annual limit, the $5 million exclusion is reduced. However, the time to act is now, as this law is scheduled to expire by the end of 2012. Your tax advisor can provide you with more information.
Happy holidays from all of us at Coldwell Banker SSK Realtors!
