Financing in Madison>Question Details

MadisonQuest…, Home Buyer in Madison, WI

Can gift money be used to pay normal bills/groceries and "free up" regular income money to be saved for down payment during approval process?

Asked by MadisonQuestions, Madison, WI Sun Jan 19, 2014

My parents are giving me $20,000, but I already have accepted offer, so I can't season the funds. I was going to have enough for the down payment myself, but then I had to give $2000 in earnest money, and now I am 2k short. I can't use gift money towards my 5% minimum down payment. So I was thinking that I could deposit the gift money into a separate account from my savings. I could use the gift money to pay some of my normal bills that I would normally pay with my income. Then that would "free up" some of my income to put into down payment savings, and I would be able save enough for my 5% conventional loan down payment in time for closing. What do you think?

The other thing is that I could do all that, but keep the gift money at entirely different bank and just not disclose any of that to the bank/CU. I don't want to do anything illegal, but does the Lender really need to know about other accounts that aren't credit/loan accounts and aren't directly related to the mortgage?

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Your Earnest Money is still your money and will be credited back to you at closing. So you are not short $2K of you down payment, it is just being held in a trust account for you.

Anytime, you are "not telling the lender" something you are walking on the edge of fraud so I would hesitate to do that.
0 votes Thank Flag Link Tue Jan 21, 2014
Ok, you need a lender that can look at all of this and lay it out per your loan program and specific situation. If you are not allowed to use the gift for the down payment, that implies that you are doing conventional financing as opposed to FHA.

You are not required to disclose funds that you have as long as they were not borrowed and/or you are not using them for the loan settlement or as any reserves that may be required for the transaction. And even if you did disclose it, it would not hurt anything, the underwriter would just, in effect, "throw out" the asset as not verifiable to be utilized in the transaction.

If you can build up enough money that can be sourced from your income to meet the loan program guidelines and don't deposit the $20,000 into this particular account, you should be ok for the financing.

I'm available to help you at your convenience if you wish.

I can do a full underwriting approval ahead of time if need be and I also offer credit score improvement programs for free while we work on your mortgage. Everyone likes to raise their score!

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Regards,

Robert L. Hanson
Gladewater National Bank
First Time Homebuyer Specialist

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0 votes Thank Flag Link Mon Jan 20, 2014
Just a few thoughts here. One, your $2000 earnest money will be applied to your "cash at closing". Does that solve your problem? If you were approved for the loan and are simply getting from A to B slightly different than planned I doubt there is an issue. You are likely dealing with "seasoning" and "reserves" as your two hurdles. Just don't lie. That said I'm not certain anyone will ask where your living expenses came from in the last 45 days. Not all that different than charging them. Unless you ran up huge balances there would be no change in your overall financial picture.
0 votes Thank Flag Link Mon Jan 20, 2014
The issue is that closing costs don't have strict rules about where that can come from. My understanding is the closing costs can be gifts or paid by someone else. But the down payment is strict watched. So the closing costs I was planning on using a gift towards.
Flag Mon Jan 20, 2014
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