By Phil Ganz
Edited by Ryan Skerritt
If you plan to use an inheritance windfall, a large asset like a car or boat, or a large amount of cash to help buy a home, there are things you should really know before going through the mortgage process in 2024.
20 Tips For Using Large Gifts and Assets To Buy a House
The financial requirements of buying a home can be overwhelming, especially when dealing with large sums of money from various sources.
Whether it's gift money, personal savings, or unexpected cash, understanding how to properly document these funds is crucial for a smooth mortgage application process.
Below are 20 quick tips for using large gifts and assets to buy a house, each designed to help you confidently manage your finances and meet lender requirements.
Gift Money for Your Home
When receiving gift money for your home, ensure the donor provides a gift letter stating the relationship, the gift amount, and that repayment is not expected. This clarifies the source of funds to lenders, making your mortgage application smoother.
Selling Stuff to Buy a Home
If you're selling personal assets to fund your home purchase, keep detailed records of the transaction, including the item sold, the sale amount, and deposit receipts. This documentation helps lenders trace your source of funds back to a legitimate sale.
Using Your Cash Stash
Depositing large amounts of cash can be tricky. Deposit it well before applying for a mortgage and keep a record of where the cash came from. A letter explaining the source may also be necessary to satisfy lender inquiries.
Bonus Money and Your Mortgage
A work bonus can be a significant boost to your home-buying budget. Provide your lender with a pay stub reflecting the bonus and possibly a letter from your employer confirming it's not a loan but a bonus.
Winning Big: Using Unexpected Cash
Unexpected cash, like lottery winnings or legal settlements, must be documented. A copy of the winning ticket, court settlement, or bank statement showing the deposit can serve as sufficient proof for lenders.
Cashing Out Investments for Down Payment
When using investments for your down payment, provide statements showing ownership of the assets before sale and the transaction record. This helps lenders verify the funds are yours to use.
Freelance Earnings and Home Buying
Freelancers should maintain meticulous financial records. Income deposited into your bank account should match the invoices you've issued, providing a clear income trail for lenders.
Wedding Gifts Toward a Home
Similar to other gift funds, document wedding gifts with letters from the givers, stating the gift's nature and that no repayment is expected. Bank statements showing the deposit will also be helpful.
Inheriting Money for a House
Inheritance funds should come with documentation, like a will or a letter from the estate executor. Bank statements showing the inheritance deposit will also be necessary.
Refinancing vs. Buying: The Money Part
Understand that refinancing may have different requirements regarding fund documentation. For instance, funds for improvements might need invoices or contracts to show the money's use.
Boosting Home Value Before Refinancing
If you're using personal funds for home improvements before refinancing, keep receipts and contracts. These prove the improvements were made and paid for, potentially increasing your home's value and refinancing terms.
Shuffling Money Between Accounts
Frequently moving money between accounts? Provide all account statements to show the transfers' trail. This transparency helps lenders feel secure about the source and use of your funds.
Large Payments from Clients
For self-employed individuals receiving large payments, present the contract or invoice related to the payment. This establishes the payment's legitimacy as income rather than an informal loan.
Money from Legal Settlements
Document legal settlements with official settlement documents and bank statements showing the deposit. This proof is vital for lenders to verify the funds are yours and not borrowed.
Using Tax Refunds for Your Home
A simple way to document a tax refund is to present the tax return indicating the refund amount and a bank statement showing the deposit. This helps lenders recognize it as genuine savings.
Disaster Relief and Buying a Home
For disaster relief funds, provide the official letter or payment notification from the agency, along with bank statements showing the deposit. This confirms the funds' origin and legitimacy.
Money in New Accounts
Newly opened accounts with large deposits can raise questions. Offer a clear explanation and any relevant documentation showing where the funds originated.
Money from Online Sales
Online sales should be documented with screenshots of the transaction, including details of the sold item and the price. Bank statements corroborating the deposit can also support your claim.
Mixing Gifts and Savings
When mixing gifts and personal savings for your down payment, document each gift with a letter from the donor. Ensure your savings are traceable to your income or other documented sources.
Dealing with a Pay Raise
A pay raise can affect your mortgage application positively. Present recent pay stubs as evidence of your new income level, alongside a letter from your employer.
FAQ: Mastering Your Mortgage Prep with Large Deposits and Gifts
How early should I deposit gift money before applying for a mortgage?
Ideally, deposit gift money at least two to three months before starting your mortgage application to avoid complicating the verification process.
Can I use cash on hand for my down payment or closing costs?
While it's possible, cash deposits are harder to document. Deposit any cash well in advance and keep a detailed record or explanation of its source.
What if I don't have receipts for items I sold to fund my purchase?
Create a detailed record of the sale, including the item, the sale date, and the buyer's information. A signed bill of sale can also serve as proof.
Do all gift money sources need a gift letter?
Yes, every gift used towards your home purchase should have a corresponding gift letter from the donor, clearly stating the amount and that it's not a loan.
How do lenders view large deposits from freelance work?
Lenders view them favorably if documented correctly. Keep a record of all contracts, invoices, and corresponding bank deposits to demonstrate a consistent income source.
Are there any types of funds that cannot be used for a mortgage down payment?
Yes, funds that cannot be properly documented or verified, borrowed funds without proper documentation of repayment terms, and certain types of loans may not be acceptable.
How can I document a pay raise for my mortgage application?
Provide your most recent pay stubs showing the higher income and, if possible, a letter from your employer detailing the raise.
What should I do if my bank account shows a large, unexplained deposit?
Provide a written explanation and any possible documentation to your lender. If it was a gift, a letter from the donor might be required.
Can I use money from a new loan for my down payment?
Generally, it's not recommended to take on new debt before buying a home. If you do, you must disclose this loan and provide detailed terms to your lender.
How do disaster relief funds affect my mortgage application?
Disaster relief funds are typically viewed as a gift and should not negatively impact your application if documented properly, such as showing the agency's award letter and deposit evidence.
Bottom Line
Getting ready to buy a home involves a lot of steps, especially when you have a big amount of money from different places like gifts or selling things.
Sam, like many others, felt overwhelmed at first. But with the right information, dealing with big deposits and gifts can be a smooth part of buying your home.
Every step, from showing where gift money came from to using cash from selling something, helps you get closer to owning a home.
It's important to tell your lender about where all your big deposits come from. This way, they know you're ready for a mortgage.
This guide gives you tips and tricks to make sure you can show your lender everything they need to know about your money.
When you understand what to do with big chunks of money, buying a home feels less scary and more exciting.
If you're looking for help or have questions, reaching out to MakeFloridaYourHome is a great next step. We can help make sure you have all you need to turn your dream of a new home into reality.
With over 50 years of mortgage industry experience, we are here to help you achieve the American dream of owning a home. We strive to provide the best education before, during, and after you buy a home. Our advice is based on experience with Phil Ganz and Team closing over One billion dollars and helping countless families.
About Author - Phil Ganz
Phil Ganz has over 20+ years of experience in the residential financing space. With over a billion dollars of funded loans, Phil helps homebuyers configure the perfect mortgage plan. Whether it's your first home, a complex multiple-property purchase, or anything in between, Phil has the experience to help you achieve your goals.
About Editor - Ryan Skerritt
Ryan Skerritt has over 10+ years of experience in the residential financing space. With over two hundred and fifty million of funded loan volume, Ryan has the skill set to help any homebuyer configure the perfect mortgage plan.
