One of the biggest hurdles to getting into your first home is the down payment. Down payment gifts and down payment assistance programs represent one way of dealing with this issue.
Down Payment Gifts
Down payments can be one of the hardest things to overcome for first time homebuyers. Down payments can be expensive, but the problem is they are extremely important. Although no down payment mortgage loans can be sought out, those loans are tricky and generally carry high interest rates meaning many avoid them. However, first time home buyers still need a way to be able to meet the down payment so they can proceed with purchasing their home. One of the forms of assistance that can be found to achieve this is down payment gifts.
Down Payment Assistance Programs
Many organizations offer down payment gift options to home buyers. Also called a down payment grant program, down payment gift programs are offered by many organizations which essentially allow sellers of homes to help buyers with the down payment so they can sell the home to the buyer. You see, technically, sellers are not allowed to help with the down payment costs of buyers. However, through these down payment gift programs, sellers can go through a third party organization and the organization will handle the down payments and charge a small fee for doing this process. This is completely legal and there are no problems with doing this.
However, there are some things to know. The home buyer must qualify for a loan that allows gift funds. The funds provided can be used for down payments and/or closing costs. These funds can be used for new or existing homes, and any funds not used must be returned to the organization.
Down payment gift programs are just one way to help encourage new buyers to go through with their objective to buy their very own home. Buying a home can be expensive and extremely difficult, especially for new buyers, and down payment gift options are just one way to help make the process a little bit easier and more manageable.
Things to keep in mind when considering down payment gifts for your home purchase:
- FHA Loans allow for your entire down payment to be a gift
- If you are using gift funds for your down payment, be sure to get a “down payment gift letter” that states the money is a gift and not a loan, and is signed by the person(s) giving you the gift
- Discuss your down payment options with your financial advisor or mortgage broker to better understand your options