Almost a third of new home buyers received a down payment from this source.



Preservation advance payment important when buying a home. A generous down payment can help you avoid private mortgage insurance – the insurance that you must pay to protect the lender against foreclosure losses if you shell out less than 20%. You can also qualify for a higher mortgage interest rate if you have a larger down payment and are much less likely to end up with more debt on your own. mortgage than your house is really worth.

However, it can be a challenge to actually come up with a large down payment – especially since you will need tens of thousands of dollars to deposit, even if you are buying a relatively modest home. This is why it shouldn’t come as a big surprise that many people didn’t end up paying their down payment on their own.

In fact, the latest data from National Association of Realtors indicates that in 2019, 32% of new homebuyers and 8% of repeat homebuyers received their down payment from a relative or friend. This money was given as a gift or loan.

The fact that so many people get their down payment from an outside source rather than saving it on their own has serious financial implications.

How a down payment on a gift or loan can affect the purchase of a home

Mortgage lenders require a down payment for many reasons, including the fact that they want borrowers to have a financial interest in the home. Because of this, some lenders fear when the down payment comes from a friend or relative rather than the home buyer.

If you receive your down payment as a gift, please report this fact to your lender. When you get down to the mortgage closing process, they will want to see proof that you have a down payment and may want to write down where they came from. If you have been given a gift, it is best that your lender is aware of it from the very beginning so that it can be taken into account. mortgage underwriter, which assesses the risk of a loan.

Most lenders will also want to make sure that donated down payment really a gift, not a loan. As a result, the person who gives you the money will most likely need to write a gift letter stating that there is no expectation of payback now or in the future.

However, if you receive your down payment in the form of a loan from a loved one, things are different. This must be documented with the lender and this will be factored in when determining the amount you can borrow as lenders keep a close eye on your current financial obligations when approving a loan.

Ultimately, since so many people now receive a down payment from a friend or family member, lenders have everything they need to deal with this and have procedures in place. The key for home buyers taking this approach is keeping the lender informed and ensuring that he has all the necessary documentation in order so that their donated or borrowed down payment does not cause them problems during home buying process


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