using gift funds with a veterans home loan
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GIFT FUNDS FOR A VA HOME LOAN
ARE THEY ALLOWED?
When a veteran decides to purchase a home, they will often try to obtain a VA home loan. These loans are designed to provide veterans with a number of benefits.
Although no down payment is required, in some situations, a veteran may still want to provide a down payment to bring down the loan amount and house payments.
They may use something known as gift funds. This is money a person may give a person with no strings attached.
RULES
If a person puts down 20% or more of the down payment for their mortgage, the entire amount can be from a gift fund.
If less than 20% of the money for the down payment is from a gift fund, the rest of the down payment must come directly from the veteran.
The minimum contribution will vary.
Gift funds are only permitted to be used when purchasing a primary residence as well as a second home.
It cannot be used to purchase any type of investment property.
REQUIREMENTS
A person can't just present a large amount of money to a lender with no explanation.
When someone is going to be using gift funds, they need to provide documentation. They must be able to show the money came from a family member or another acceptable source.
They will need to provide a legal and legitimate paper trail showing how they obtained the funds. This can be done with documentation from a bank account or other financial institution.
LEGITIMATE GIFT FUNDS
It's important to realize only funds considered truly legitimate can be used as gift funds.
There cannot be any type of agreement in place for the funds to be paid back to the individual or entity that is providing them.
The gift funds are not permitted to come from any individual or entity that would benefit from the sale of the home.
Seller Real estate agentsLoan officer
If any of these people are related to the individual seeking a loan, they're not permitted to provide gift funds to the borrower for the purchase:
GIFT LETTER
Some lending institutions will require a borrower to provide a gift letter before being able to use gift funds for the purchase of a home.
The gift letter needs to list:
Donor's name Address Phone number Type of relationship they have with the borrower
The address of the property being purchased also needs to be listed.
The source of the funds such as the bank account where they are located needs to be mentioned.
The date the funds will be provided need to be explained. A statement that the funds will not need to be repaid should be included.
The donor's signature also needs to appear at the bottom of the letter.
TAX CONSEQUENCES
Experts advise individuals who intend to use gift funds for the purchase of their home to contact a tax professional.
It’s possible there will be tax consequences for the recipient of the funds as well as the person or entity who gave them.
It is not the lender's responsibility to report any type of gift funds used to obtain a mortgage to the IRS.
The tax consequences for each borrower and gift fund provider may be different.
Mortgage Originator Jimmy Vercellino, specializing in VA loans, helps veterans use their VA loan benefit to their greatest advantage.
For more details call 480-351-5904. Visit the site at https://www.valoansforvets.com/
VA Loans for Vets7600 E. Doubletree Ranch Road #200 Scottsdale, AZ 85258Phone: (480) 351-5904Email: [email protected]
