The required down payment to obtain a mortgage will depend on the type of mortgage being obtained. For the 3 major types of mortgages available, the minimum down payments are as follows:
- VA mortgages require a minimum down payment of 0%.
- FHA mortgages require a minimum down payment of 3.5%.
- Conventional mortgages require a minimum down payment of 3%
While it is possible to obtain a mortgage with a zero-down payment, or low-down payment, for many it is advisable to have money available for a larger down payment in order to make the monthly payments more affordable. A major challenge for today’s homebuyer is saving enough money for the down payment and closing costs.
GIFT FUNDS
One option available to home buyers is to receive a gift for the down payment from an eligible donor. VA, FHA and Conventional mortgages have specific requirements for what constitutes a gift, what the gift funds can be used for, who can contribute a gift and what is involved in documenting gift funds.
Under mortgage guidelines, a gift is money given to a borrower by a family member or other eligible donor to help with their down payment or closing costs. These funds are not a loan that must be repaid. Gift funds fall into 3 main categories:
- Personal gifts.
- Gifts of equity, which are given by the seller of a property to the buyer (often a parent or other relative). The gift is a portion of the seller’s equity in the property.
- Grants, which are often non-repayable funds provided by organizations and programs that target specific groups, such as first-time buyers or individuals with moderate-to-low incomes
Depending on the mortgage program, eligible donors include
- An individual who is related to the borrower by blood, marriage, adoption, or legal guardianship
- A non-relative that shares a familial relationship with the borrower, such as a domestic partner or a fiancé
- The estate of a related person
- A relative of a domestic partner, a godparent or a former relative
Generally, gift funds are allowed for mortgages that involve a primary residence or a second home but are not allowed for an investment property transaction.
To document a gift, a gift letter is required that must:
- Specify the actual or the maximum dollar amount of the gift
- Include a statement that no repayment is expected
- Indicate the donor’s name, address, telephone number and relationship to the borrower (no form of verification of relationship is required).
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For additional information on how to take advantage of the gift rules contact Wayne Tucker at 303-468-1985 or at wtucker@spectramortgage.com.
