One of the toughest aspects of purchasing a home is coming up with the down payment. While homebuyers can employ a number of strategies for producing the cash, some people are crowd sourcing the funds using a variety of online donation sites. However, if you choose this option, it's critical you go about it the right way to avoid having those gift funds rejected and your loan denied. Here's what you need to know.
Gift Funds Must Be Verifiable
Banks are risk sensitive, so they thoroughly evaluate and investigate loan applications to ensure potential homebuyers aren't doing things that may lead to them eventually defaulting on the mortgages. With gift funds, lenders want to make sure the funds you receive are actually gifts and not secretly loans that have to be repaid.
Thus, banks typically require you to obtain letters from all the people who give you money verifying you don't have to repay cash. With online donation sites where thousands of people may give money anonymously, this can be hard—if not impossible—to get the documentation needed to confirm the gift funds.
You can handle this in a couple of ways. The first is to use an online donation sites specifically designed for home buyers. These sites differ from regular donation sites because they will usually have donors fill out the required forms that must be submitted to the bank to confirm the donation is not a loan.
The other option is to create a detailed paper trail. Take screenshots of your crowdfunding campaign, transfer the money to a dedicated bank account, and highlight those deposits on your bank statements. This way, the lender can see the cash you received were legitimate donations. The lender may still require additional information, so be sure to check with the bank to avoid unnecessary delays.
You May Still Be Required to Contribute
Some banks let homebuyers use 100 percent gift funds to pay their down payments, but some mortgage programs require applicants to still contribute a certain amount of their own money under certain circumstances. If you're purchasing a second home or a multi-family dwelling (i.e. duplex) and you're down payment amount is less than 20 percent of the home's purchase price, at least 5 percent of the down payment must be funded from your own financial resources, for example.
Be sure to thoroughly research the requirements of the loan program you want to use and make the necessary adjustments in your down payment strategy to accommodate any special conditions.
For more information about this or other mortgage matters, contact a loan officer.Share