Down Payment "Gift" Options

BJones · Joined: 04 Oct 2006 Posts: 4

My Fiance and I are in the process of trying to buy a condo. Our situation is that our current apartment is being sold as a condo and we are not interested in purchasing the unit. So, we have to move out by January since our unit has been sold to another buyer we were notified in writing that we had 120 days to leave.

That is fine with us as we are really interested in buying another place. My fiance's parents are planning to give us $100,000 as a down payment towards our condo that we would eventually pay back to them. However, our mortgage broker informed us that we can't use the $100,000 towards our purchase until it has been in one of our (my fiance or myself) accounts for 60 days. The problem with that is that we are ready to buy now, we have a place picked out, and need to get out of our current apartment by January.

Is there anything else we can do? The money is legitimate his parents have the money ready to give us and it is documented in their bank accounts. There is no problem with our credit history in fact my score is 775 and i would be the main borrower on the loan. We can easily be approved for the loan once we figure out how to use the $100,000 for a down payment because our loan amount would then be about $175,000 on a $275,000 condo.

Does anyone have advice on how to get around the 60 day rule?

chow · Posted: Wed Oct 04, 2006 7:42 pm Post subject:

Who's rule is that?

I don't think your loan officer knows what they are talking about. I just checked the DO/DU guidelines and I didn't see a 60 day rule there. I know FHA doesn't have that either.

BJones · Joined: 04 Oct 2006 Posts: 4

He told us that it looks like money laundering if we were to use money from soneone else that does not come from one of our accounts. So what you are telling me is that this rule may not exist. I will inquire with him about exactly what the rule is. But this doesn't sound familiar to you?

DallasLoanGuy · Joined: 26 Sep 2006 Posts: 169 Location: Dallas, TX

the funds must be sourced and seasoned.

if not 'seasoned' for 60 days in your account. it must be 'sourced'

dont have it for 60 days, then who gave it to you and for what purpose?

a gift letter will get around the seasoning, as it will give you a source.

you cannot borrow money for a down payment. it would have to be a gift.

which doesnt seem to be the case if you are going to pay it back

BJones · Joined: 04 Oct 2006 Posts: 4

The plan would be to give them a percentage back at the time we choose to sell (well down the road), but if it were to be documented as a gift i.e. 'sourced' we could deal with the payback issues on the side i.e. without involving the bank. right?

m2c · Joined: 03 Aug 2005 Posts: 937

OK, you’ve passed the dictionary gender test (most folks don’t get this “right”) but you do have a definitional problem with “gift”. Gifts are gratis and do NOT have any repayment requirement. What you are getting is an interest-free (presumably) loan. Strange as it seems, if it’s in your bank account for 60-days, it’s “yours” – no questions asked.

Your FICO is well within the “conforming loan” range and there is little incentive for you to be hit with the higher rates and fees of subprime (who would take this deal in a heart beat).

My advice is two fold. Either go to a bank who would do a portfolio deal but this cuts off the brokers who to his/her credit is taking the honest route. Other option is to deal with your current broker and tell your future in-laws that the price of admission is a true 20% gift (this eliminates the 5% contribution by you) and the balance in a 2nd mortgage (assuming you can stand the debt ratio). Downside is the “hit” you’ll get on the first mortgage since the combined loan-to-value exceeds 90% given the total dollar amount.

Sadly there is a “method” to avoid the 60-day (really average balance over last 2 months) “rule” but I will not provide details since it is at a minimum unethical or, more likely, fraudulent. You WILL find a scum bucket out there that will “do” it for you.

My suggestion is to have your current HONEST broker try to get a one-time, no-cost recast option from the loan purchaser. Go with 20% down from a TRUE gift and then apply the balance of the $100K (these funds will not be sourced at this point) and realize the lower monthly payment. I know you may well consider the concerns of the secondary market provincial but, believe me, it’s better than stepping into the fraud netherworld.

m2c · Joined: 03 Aug 2005 Posts: 937

Ouch I didn’t give Chow her due on this one. Yes FHA doesn’t specify 60 days (4155.1, 2-10(B)) but this is how bank report on a VOD and the broker is REQUIRED to trace any large deposits. Chow is knowledgeable but occasionally she can be a pom-pom girl for FHA. (she knows I feel there are additional sarcasm icons needed on this site – I do respect her opinions). FHA is NOT a rational solution to your situation – what bear the baggage of 1.5% and monthly MIP?

chow · Posted: Thu Oct 05, 2006 12:00 am Post subject:

With 20% down who would go FHA? :lol: :lol: :lol:

I about fell off the chair when they said your relative could borrow the money to "gift" you! (Yeaaaaaaaaaaaah right!!!!I would believe a 20% down gift letter before I believed that a gift of money-that has been loaned to the giver-is not going to be paid back by the person receiving the gift!)

4155.2-3c

Hey- I "Loaned" my son down payment money for his FHA loan that closed last week. I called the loan due with hard work and sweat this last sunday when my husband broke his arm! I have a 30X30 deck to finish. (He fell through the joists for the deck. It's a FEW feet off the ground)

I figure I'd pay someone else that much to finish it!

If truth be known, I'd say a large percentage of "gifts" are silent seconds that are handshake agreements between parents and children. We all know that. I'm just making a very honest comment.

Haplo · Joined: 20 Jan 2005 Posts: 2422 Location: Springfield, IL

I've had a few with 20% or more in equity that were fha ;)

m2c · Joined: 03 Aug 2005 Posts: 937

Have your broker run the numbers for FHA but I get an added upfront expense of approximately $2,625 plus an initial monthly MIP payment of $72.52 assuming the same rate for FHA and conventional. You’re still stuck with the issue of the “gift” aka loan in your case. I’m not sure if Chow is implying that FHA “doesn’t care” if a gift is a loan but this is NOT what the manual says.

If fact you situation (AND that of your future in-laws) could be worse:
· You would be making a false statement on the loan application for a federally related mortgage -- 18 USC 1001 but bear in mind any jail time would be done in federal prison – much better than state institutions.
· Your future in-laws would be also making a false statement in the gift letter (great way to start off a marriage)
· At $100K I assume your future in-laws would have to report to IRS and payment tax … or make another false statement, in this case to IRS.
· The broker I suspect is fully aware of the situation and you are putting him and possibly his employer in jeopardy.
· With FHA you would have the additional issue to making false statements to a government agency!

Would you or your future in-laws get caught and prosecuted? Probably not. This likely is what accounts for Chow’s casual (I think) attitude towards “gifts”. I thought her prior comments about “everybody expects you to lie on stated income loans” was tongue in cheek but now I’m not sure. My guess is that this implied criticism is NOT justified.

Not to morph into the state of ethics in the broker industry but if you don’t draw a line in the sand, loan officers will likely go way over the line with “newly created” information. Within my company I view this " manipulation" of the truth as a serious situation which encourages LOs to take even more dangerous steps in the future.

BJones · Joined: 04 Oct 2006 Posts: 4

Thanks for all the info I will take this info to the broker and see what comes of it all.

Thanks again.

richardvan1 · Joined: 16 Dec 2006 Posts: 2

It may also just be your current bank.
I had the same problem with a bank that i was using since i was a child. so when they wouldnt help me out i found a financial institution that would.

raiden031 · Joined: 21 Jan 2007 Posts: 3

I have a similar problem. I am ready to close a loan and was offered a 10K closing cost gift from my in-laws. I have probably 15K in my bank so my lender said I was not allowed to accept this gift because it will make me appear to be more risky because I am more willing to walk away from my obligations as I would lose gift money. The problem with spending my own money on closing costs beforehand is that my money is tied up in CDs, and I will get penalized for cashing out the CDs in order to pay my closing costs, only to be reimbursed by my in-laws immediately after closing.

The funny thing is that the bank thinks it is less risky for me to close a loan with 5K remaining in my bank than to do it with 15K in my bank. If I got laid off I would most definitely be in default within 1 month because my monthly expenses would immediately dry up my bank account. At least if I had the 15K still in the bank, I have 2-3 months before I'm in trouble.

This is an idiotic methodology and the same can be said about the way credit scores are calculated. Even though I have good credit, it is not perfect even though I have never been late on a payment in my entire life and I pay my credit card off every month.

Haplo · Joined: 20 Jan 2005 Posts: 2422 Location: Springfield, IL

Perhaps they are underwriting to a different set of guidelines. Have them provide that to you in writing per the underwriting guidelines.

Otherwise, one of two things needs to happen. Your lender needs to do some homework, or you need a new lender.

Maisondetre · Joined: 07 Jun 2007 Posts: 18 Location: PA

Re: "If truth be known, I'd say a large percentage of "gifts" are silent seconds that are handshake agreements between parents and children. We all know that. I'm just making a very honest comment."

Does this mean a parental gift is ok, as long as there is a letter to accompany it? Or not?

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