First-Time Home Buyers Advice: Gift Money as a Down Payment

It’s not uncommon for first-time home buyers to ask: “Can my mom and dad give me money to help me buy this house?”

The good news is yes, you can receive a gift from your parents to buy a house, but the way that you actually receive the gift is very important. Mom and dad can’t just leave money under your pillow like the Tooth Fairy did when you were younger.

The process of accepting a gift for your down payment isn’t complicated, and by following these simple rules, you can be sure that the underwriter who is reviewing your file will look at it with an approving eye.

Write a gift letter

If someone is going to be gifting you money to help you buy a house, you’ll first need a gift letter. The gift letter needs to be a short, sweet letter that is hand-signed by you and the person giving the gift. It needs to contain the following:

• The relationship between the home buyer and the person giving the gift.
• The amount of the gift.
• The address of the home being purchased.
• A statement that the money is a gift and not a loan that must be paid back.

Establish a paper trail

Next, you’ll need to create a paper trail. This is important because underwriters will look for where the money came from and where it went. In simple terms, they will look for proof that the money came from your parents’ account and went into yours.

Each situation will be slightly different, but be ready to provide paper proof of your parents’ account having money in it, money coming out of that account, a deposit into your account and proof that your account now has the money in it. Accuracy matters when creating this paper trail, so make sure each transaction is for the exact amount of the gift.

Write a gift letter and use this shortcut

Creating a paper trail correctly has proven to have its fair share of hassles. Getting copies of transactions is time-consuming, and underwriters seem to question every little thing in the process (“where exactly did the $10,000 transfer that I see coming into mom and dad’s account come from?”).

The good news is that there’s a shortcut when it comes to gift letters — one that makes the entire process easier.

Simply add one sentence to the letter that says: “Will wire the gift directly to escrow at time of closing.”

If you add this line to your gift letter, you can avoid all of the paper chasing that most underwriters will require. A day or two before closing, you can get wiring instructions from your escrow agent for mom and dad to wire the exact amount of the gift directly to the escrow company working on your transaction.

Housing market steadily improving

As the market improves, fewer affordable homes available

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For the past few years, the housing market has continued to recover. This year is no exception.

by: GARY ALLEN - Moving in -- The Greens, near the Chehalem Glenn Golf Course, is one of ­several areas in Newberg where new houses are being ­developed. To date in 2013, there have been 33 homes ­started in Newberg, compared to a total of 44 last year.

“When the recession was going on there was no new construction,” said Matt Willcuts of Willcuts Company Realtors. “We’re starting to see the market coming back and more builders coming back and starting to build more.”

In Newberg, so far this year there have been 33 housing starts, compared to 44 last year. For Yamhill County, 76 homes have been started this year, up from a total of 65 in 2012.

Nationally, there have been almost 4.9 million housing starts from January through August, according to a construction report by the U.S. Census Bureau.

“There’s a pent up demand for (new houses), so as long as we keep a healthy amount of lots we should be OK,” Willcuts said. “We just don’t want to flood the market.”

He said there are two main areas in Newberg where new construction is taking place: The Greens and the High­lands. Homes in The Greens sell for $340,000 to $450,000. Residences in the Highlands are a little more affordable, priced from $240,000 to $280,000, but Willcuts said there aren’t a lot of options for people looking for a home less than that.

“It’s pretty sparse if you’re a home buyer and look­ing for brand new homes up to $250,000,” he said.

“There’s basically two or three homes available. If you go from $250,000 to $300,000, there’s a few more.”

But he said below that, it’s almost impossible.

He said the fees builders pay for permits — including a building permit fee, system development charges and fees to the school district and Chehalem Park and Recreation District — can amount to $25,000.

“By the time you do those and the cost of construction, it’s almost impossible to build a new home for right around that $200,000 range,” he said.

In Yamhill County, this year there are 987 pending sales and 902 closed sales, a 24 percent increase compared to last year, according to the Regional Multiple List­ing Service.

Na­tion­ally, from January to Au­g­ust, there were 304,000 new homes sold, and more than $3.1 million existing homes sold.

Willcuts said often, the new homes are sold before construction finishes.

“I think it’s because we’re not putting out 50 homes at a time,” he said. “There’s a healthy amount of inventory.”

And the prices are increasing steadily instead of getting out of hand, as Willcuts said occurred from 2002 to 2006.

“It was just going up so fast and everyone was getting caught up in it. People were using their homes basically as ATM machines. So they’d buy it and six months later (refinance) it and keep pushing and pushing,” he said. “Now we’re seeing people getting in to these homes who qualify. They have jobs now. They have good credit. So the pendulum has swung from anybody can buy a house to it’s a little more difficult, but it’s the right people who can afford it. So I think it’s a good thing.”

With the steady increase of sales and new construction, Willcuts said he expects plenty of available lots for new housing demands within the city limits.

“Eventually we will have to expand and have that land annexed into the city limits, but our inventory now (is pretty good),” he said.

Kelly Hagglund, of The Kelly Group, said although the inventory is good now, it has decreased 18 percent since last year.

“It means that we are moving toward a seller market in some price ranges and it is the best time for a seller to get their properties on the market,” Hagglund said.