Let`s say you just got married and received a substantial down payment donation. While you may be excited about getting that money out of the bank, you don`t want these deposits to cause problems when you`re trying to qualify for a mortgage. Let`s go over a few more details about how donation money affects mortgage underwriting. „A donation agreement [or donation] can be used to make sure you can rely on a donor`s promise, set the expectations of the donor and receiver, and avoid misunderstandings.“ – ConservationTools.org, Pennsylvania Land Trust Association The solution is to request a gift letter that accompanies every big financial gift you use for your down payment. A gift letter is a statement that guarantees that the money that entered your account is a gift and not a loan. The person who gave you the money must write and sign the gift letter and provide their personal details. This resource provides useful information on why a gift contract may be necessary and important, and how to get started with a gift agreement. The next section, titled „* Gift Contract Template,“ contains a gift agreement template based on an agreement created by the Collier County Community Foundation. Examples of donation agreements provided by the Association of Donor Relations Professionals and Tulsa County. Yes, a gift letter is ideal if you have received a large amount of money as a gift from your family or friends. But if it`s not specific about how it`s set up and what information is included, it might be useless. Make sure your gift letter includes the following: You are generally not responsible for paying taxes on the money you receive because you are the person receiving the gift. However, the person who gave you the gift may need to do so.
Let them know about donation tax laws so they can prepare for the upcoming tax season. Did a generous parent give you money for a wedding gift or graduation? It`s likely that you`re very grateful for the gift money, and that`s completely understandable. Philanthropy Works published an article on how to start with a donation agreement focused on a departmental leadership perspective. Read it here. You may need to provide bank statements worth more than one month. That`s because lenders want to see what kind of money you`ve had in your account for a long time and what assets are new. FHA Gift Letter – You may be looking for a specific type of loan, such as an FHA loan. Federal Housing Administration (FHA) loans are issued by an FHA-approved lender and are insured with the FHA. Designed to meet the needs of low- and middle-income borrowers, they can accept more flexible licensing regulations. That said, if you receive money as a gift to use as a down payment, an FHA lender will likely still want proof that the money was actually a gift. The lender should know that the money that went into your account is a gift, not a loan.
Loans hinder your ability to repay your mortgage and add an extra layer of risk to the lender. When you apply for a mortgage, lenders should know that the money you use for your down payment is yours, not a loan. If your donor gives you more than that amount, they will need to file a tax return to disclose the donation. Filing a tax return does not mean that they have to pay taxes on the gift, it simply means that the amount was counted in the lifetime gift tax exclusion. This determines how much money you can give to a person during your lifetime. When accepting donations from donors, it is essential to consider the underlying laws and principles that govern these donation agreements. Donation contracts may exist orally, in writing, only implicitly depending on the form and content of a donor advertisement, or not at all. Many donations are given by donors who have no contact with the NFP, the only proof of their intention to contribute is manifested by receiving a single cheque, an online payment or a cash donation. In some cases, typically when it comes to large and complex contributions and pledges, and in the case of fiduciary agreements or agencies, not-for-profit organizations and donors enter into written giving instruments to recall the terms of the donation and ensure mutual understanding.
Just as a not-for-profit organization must keep accurate records of donations received, a donor must keep records of the donations it makes, particularly with respect to tax season. Having an accurate donation agreement and other financial records on file will help keep the nonprofit and donor on the same page. Keep in mind that while a gift letter alone is a good start, some lenders may ask for more information to determine if the money is actually a gift. You may want to see the donor`s bank statements to make sure he or she actually had enough money to give it to you. And they may even go so far as to ask for a banknote that shows that the money has been transferred. Many states require an affidavit when a car is transferred from one person to another without payment or for an amount significantly less than the value of the car. In these situations, you can find a downloadable form on the website of the Ministry of State of Finance. A bank may also require a declaration requiring a donation to document how a buyer finances a home`s down payment.
The lender needs to know if this money needs to be repaid and is therefore part of the buyer`s debt burden or if it is a gift that does not require repayment. Here`s an example of Lynne Wester`s language from Donor Relations Guru that you should have reviewed by your general counsel and then had in your gift agreement: Check here for a sample gift agreement for the University of Alabama at Birmingham provided by the Association of Donor Relations Professionals. As long as the gift letter is written by the donor and explains the relationship you have with each other (as well as everything listed above) and signed by both people, everything should be fine. .