Over 25% of first-time homebuyers receive some gift money from a relative, according to the National Association of Realtors. Gifts that are used for a down payment can offset your monthly mortgage costs, and can increase the amount you spend on a home. If you find yourself in this enviable position, there are a few things you should know.
It's Okay to Ask
Considered one of America's most livable cities by Forbes.com, purchasing new construction in Pittsburgh is a great option for first-time homeowners. Culture, job prospects, great sports teams, and affordability—they're all here.
Saving for a down payment can be hard— in fact, it's often the biggest hurdle when purchasing a home. In fact, a recent survey by Trulia found that 51% of renters say that coming up with the down payment was keeping them from buying.
If asking for money makes you uncomfortable, remember this: A gift won't only benefit you. If your relative is planning on leaving you an inheritance, giving you a gift now can reduce the size of their estate tax. Plus, they receive the fulfillment of watching you enjoy the money during this lifetime (as opposed to the next).
Getting Around the Gift Tax
According to federal tax laws (which change frequently), a person can give a tax-free gift of up to $13,000 to another person in a calendar year. If the gift-givers are your parents, they can jointly give you that amount, which would raise the gift to $26,000. And if you're married, they can give you and your partner that same amount, racking the gift up to $52,000.
But wait! According to an article in The New York Times, if your folks wanted to get really crazy around the holidays, they could give you that money for Christmas or Hanukkah and then another gift for New Year's for a merry-making $104,000. But those would be very generous parents.
You Might Need a Gift Letter
Unless you've had a gift for a while—three months or more—it's likely you won't need to document it for a mortgage lender. However, if you haven't had the cash that long, you'll probably need your gift giver to submit a letter stating that the gift isn't a loan that needs to be repaid. According to legal authority Nolo, the simple letter below is all that's required (just mail the original). Your lender will let you know if they need more information.
To Whom It May Concern:
We [donor's names] hereby certify that we have made [or will make, on a stated date] a gift of $[amount] to [names of recipients], our [child, sibling, grandchild, or other relationship between recipients and donors], to be applied toward the purchase of the property located at [address].
No repayment of this gift is expected or implied either in the form of cash or future services.
[Sign and date]
One more thing: If you do get a gift, remember to say thank you (or just take grandma out for a steak and lobster dinner).
Ryan Homes Tip: You might encourage your parents or relatives to discuss the gift with other family members (such as a brother or sister). Bottom line—do your best to avoid any emotional entanglements.