When buying a house in Tennessee, gift money can boost your purchase power and improve your charm as a buyer. Underwriting requirements differ, but your mortgage lender in Hendersonville or Nashville may allow you to use it to increase your down payment, cover the closing costs, or even beef up your asset reserves.
To further understand and appreciate its value, let’s answer some of the most asked questions about gift money:
What Type of Property Can Be Bought with It?
Generally, the use of gift money is allowed in conjunction with virtually all mortgages. Lenders that accept it usually limit its utility for buying an owner-occupied house as a primary residence or as a second home mortgage lender
It’s not an option to purchase a non-owner occupied property, though. In other words, you can’t use gift money for investment because you must live in the house you’re buying with it.
Who Can Be a Donor?
Many people can qualify as a donor. By and large, lenders would allow you to use gift money from anyone related to you by blood, marriage, adoption, or legal guardianship. Also, you can use funds from a domestic partner (provided the two of you have been living together for 12 months), or a fiancé or fiancée.
Make sure you can prove that your gift money is truly a donation — not a loan or an investment. If your lender discovers that you receive the funds after incurring a new debt, like a credit card cash advance, it will lower your debt-to-income ratio and hurt your qualification.
Also, the donor can’t be an interested party in the deal. Accepting money from a home builder, property developer, or a real estate agent would raise a lot of questions.
Is There a Minimum Borrower Contribution?
If you want to use it to increase your down payment, you’ll still need to contribute out of your own pocket. Mortgages have different borrower contribution minimums, but paying 5% of the required down payment from the borrower’s bank account is common.
Maximize the use of gift money to buy your dream home faster. For as long as you meet your lender’s conditions, it can help snag a lower interest rate and avoid private mortgage insurance to save a lot of money down the road.