Keys to Helping a Family Member Buy a Home Now
If you plan to help your family member purchase a home, take heed: Transferring money among different bank accounts is going to make their homebuying process stickier. Furthermore, if you’re unable (or refuse) to document the origin of the monies you transferred, you can only impede your family member’s home purchase. Here’s the scoop.
Donor funds must be documented, sourced and paper-trailed. Let’s say you’re helping your daughter buy her first home. The amount you plan to give her is $20,000. Her mortgage lender or broker originating her loan will need you to sign a gift letter stating the relationship, and to identify the account where the money is coming from. Formerly, you were required to show only the most recent
You can make the process quick and easy by moving the monies one time….
statement on this account. However, new lending regulations now require two months of statements showing where these funds are coming from.
Where Things Become Sticky: If you plan to provide gift funds for your family member buying a home, keep it simple and have the funds in the account ready to go for use in the transaction. If your checking account, for example, has $10,000, and a new deposit or transfer comes into this account from another source totaling the $20,000 you plan on donating, things just got more technical. The lender will need to see where the additional funds came from, and sourcing the money movement.
All monies must be accounted for to fully support that there is no money laundering or fraud-related activity. Mortgage companies must adhere to this level of scrutiny, but it doesn’t necessarily have to be difficult. If the money to be donated is not in the account you plan to use, take this example as guide. Say the money is coming from a money market account where all your assets are kept. It would be tremendously easier to simply wire the monies from the asset account where the monies normally reside directly to escrow, bypassing your child’s checking account, which typically has daily transfers and withdrawals as most people use a checking account for their normal daily and/or monthly spending activities. Moving the money directly into their checking account or even your account is not necessary, and in fact it creates a scenario on paper that the donated funds for the home purchase are being spent.
If the damage if already done, re-gift the monies to escrow, otherwise it may appear your family member has shorted gift funds to close escrow.