For people trying to come up with a down payment on a home, there are a number of options, one being a gift loan. In this case, typically family would provide the funds although anyone can provide a gift loan. You will also find programs for gift assistance. Now, the seller of the home can assist the buyer with closing costs by providing a portion of the proceeds back to the buyer at the time of closing. However, the amount the seller can give the buyer would depend on the type of loan being secured. Just remember that a seller is not permitted to give buyers down payment money. Therefore, the buyer would need to consider a gift loan program.
These programs are designed to work around laws that do not allow sellers to help buyers. The way it works is that the seller would enroll the house into an appropriate program at which time an amount equal to the assistance the buyer would receive at closing is contributed, as well as any applicable fee. Then, after the closing is complete, the down payment funds are wired from the program to the agent in charge of the closing. Therefore, the seller is not involved with the transfer of money, thus finding a legal loophole.
If you are looking at working with the Housing of Urban Development (HUD) does not approve gift programs that are provided by charitable organizations. Because of this, they will not offer any type of official approval for this type of program. In this case, the lender would have the responsibility for making sure the gift to the buyer coming from any charitable organization would meet strict guidelines set forth by HUD. For instance, if the organization follows the regulations, they would be allowed to provide a cash gift to buyers without needing FDA approval first.
Other important tips for gift assistance programs are that a buyer must be able to qualify for the loan allowing these funds, no minimum or maximum income requirements for buyers are set, and generally, assistance ranges between 1% and 7%. In addition, gift funds are used for down payments and closing costs, on both new and existing homes. Keep in mind that if not all of the money were used, any remaining portion would be returned to the program to assist another buyer.
While this type of program is great for buying a home, it cannot be used to refinance or make any kind of home improvements. There are restrictions for sellers as well in that they cannot use the gift as a write-off for a charitable contribution. However, the money can be deducted for tax purposes for selling expenses. Although a gift loan is not for everyone, it has proven an excellent tool for many people wanting to become homeowners.