FHA question - add myself to my parents' bank account??!

[swbsam]

I'm so confused, sorry for asking here vs. "professionals" - I'm getting so much contradictory information!

We're well into the process of buying a home (deposit made, contract signed) and our mortgage company now tells me (months in!) that I need to have 3.5% of the purchase price of my home in a bank account, for at least 90 days. Since we had no idea that this was necessary and assumed that my parents' gift (over 6% of the purchase price) was enough, we're a bit confused now..

He said a work around would be to add my name to my parents' account, where the funds (the 6%) have already been hanging out.

Is this true?

 

[Hoober]

What are the terms of the mortgage? Is this a requirement to secure the financing? If so, shop for another mortgage.

 

[OCGuy]

3.5% of your FHA loan has to be from your OWN FUNDS. They can gift the rest.

Fannie/Freddie is 5% of your own funds.

Your LO should have told you this from the start.

 

[FP]

Careful how you do the money transfer. There could be huge tax implications if the IRS considers the transfer a gift.

 

[mugs]

Originally posted by: FP
Careful how you do the money transfer. There could be huge tax implications if the IRS considers the transfer a gift.

As I understand it (and I believe one of the CPAs here explained it to me) -
If the gift is over the current limit (I believe $12k), it counts against the gifter's $1 million lifetime exemption from the gift tax. Only after they've used the entire $1 million exemption with gifts of more than $12k will his parents be subject to any gift tax. If the OP is married they can give him $12k and his wife $12k without counting it toward the $1 million exemption.

 

[OCGuy]

This is not an IRS issue, believe me.


@ OP, I hope you dont end up losing your deposit on the home 🙁 A good real estate agent would have put a "subject to financing" clause in it though.

 

[ShockwaveVT]

#1 I'm not clear why your parents haven't already transferred the $$ to your account to simplify the purchase. Why are they holding onto the money? Were they simply going to write the down payment check for you?

#2 The thing about having the 3.5% balance in an account for 90+ days smells like B.S. to me. Perhaps that lender is running scared of defaults or something.. but the loan is FHA insured, they shouldn't put you through that kind of crap. If you have any other pre-approvals still active, inquire with them and make it clear to your current lender that you have other options for financing.

 

[DannyLove]

Originally posted by: Ocguy31
This is not an IRS issue, believe me.


@ OP, I hope you dont end up losing your deposit on the home 🙁 A good real estate agent would have put a "subject to financing" clause in it though.

To the OP: Are you in your contingency period. My recommendation is to find a new lender at the same time you need to pull out and get your deposit back since you obviously didn't meet the basics of an FHA loan (why your lender decided not to tell you this is beyond me, also, why you didn't do your own homework on this is also beyond me)

I won't give any advice behind the work around because I don't have a clue how that works. Also, it was my understanding FHA's were removing this "gift" work around since Oct 31st 08...

Find your offer agreement and find your contingency clauses. Your real estate agent should know whether or not what Ocguy31 posted is possible. Good luck

 

[OCGuy]

Originally posted by: ShockwaveVT

#2 The thing about having the 3.5% balance in an account for 90+ days smells like B.S. to me. Perhaps that lender is running scared of defaults or something.. but the loan is FHA insured, they shouldn't put you through that kind of crap. If you have any other pre-approvals still active, inquire with them and make it clear to your current lender that you have other options for financing.

In order to prove that the money is yours, and not given to you at the last second, the lender does a Verification of Deposit. This shows your current and 60-90 day average balance. If the current balance is too far above your average balance, they figure that money is not yours.

 

[sactoking]

He said a work around would be to add my name to my parents' account, where the funds (the 6%) have already been hanging out.

Is this true?

It may be, but it's not the easiest way to do it.

3.5% of your FHA loan has to be from your OWN FUNDS. They can gift the rest.

Not true.

Careful how you do the money transfer. There could be huge tax implications if the IRS considers the transfer a gift.

IF there is any gift tax incurred (the gift >$52,000) the DONOR is responsible for the gift tax.

Here's the deal:

FHA requires the money to be in your bank account for 90 days OR proof that the money came from your regular earnings. They don't want you borrowing the money for the down payment. Even something like selling a car or selling stock for the down payment is prohibited.

However, if you're getting the 3.5% as a GIFT from a relative you do not have to show 90 days worth of statements. Instead, you need to have the donor sign a gift letter stating that they attest, under penalty of perjury, that there is no explicit or implicit agreement to repay the funds to the donor. You will also need to provide copies of the donor's bank statement that the money was drawn from, a copy of the cleared check, and a copy of your bank statement showing the deposited check.

It's all laid out at the FHA website and at other locations across the internet.

I also know this to be fact, as I went through it in September.

Edited to fix quote thingies.

 

[her209]

Is this "gift" a 0% interest loan from your parents?

 

[OCGuy]

Originally posted by: her209
Is this "gift" a 0% interest loan from your parents?

You have to say it is :laugh:

 

[dmw16]

So basically getting into this house is draining all your savings? No 3-6 month emergency fund or anything like that? Sounds like you can't even afford this house, but also sounds like it's too late for that to matter.

 

[sactoking]

Originally posted by: DannyLove
Also, it was my understanding FHA's were removing this "gift" work around since Oct 31st 08...

The 'gift' provision that was removed was the one allowing sellers to arrange for a "gift" for the buyer from a nonprofit entity in exchange for the seller making a "donation" to the nonprofit...... for the exact same amount.

True gifts from family are still allowed.

 

[sactoking]

Originally posted by: dmw16
So basically getting into this house is draining all your savings? No 3-6 month emergency fund or anything like that? Sounds like you can't even afford this house, but also sounds like it's too late for that to matter.

That's not what the OP said. What he said was that FHA, by way of the lender, was only telling him half the story about how the gift needs to be documented.

 

[ShockwaveVT]

Originally posted by: Ocguy31

Originally posted by: ShockwaveVT

#2 The thing about having the 3.5% balance in an account for 90+ days smells like B.S. to me. Perhaps that lender is running scared of defaults or something.. but the loan is FHA insured, they shouldn't put you through that kind of crap. If you have any other pre-approvals still active, inquire with them and make it clear to your current lender that you have other options for financing.

In order to prove that the money is yours, and not given to you at the last second, the lender does a Verification of Deposit. This shows your current and 60-90 day average balance. If the current balance is too far above your average balance, they figure that money is not yours.

EDIT: read sactoking's post...

Does the money have to be in the account that the down payment is drawn from, or just any account in your name? I'm looking to buy via FHA in the next 4-6 months and I don't want a big chunk of cash wasting away in my checking account when it could be earning me 1.8% (*cry*) in my e-trade savings...

 

[sactoking]

Originally posted by: ShockwaveVT
Ugh, big PITA.

Does the $ have to be in account that the down payment is drawn from, or just any account in your name? I'm looking to buy via FHA in the next 4-6 months and I don't want a big chunk of cash wasting away in my checking account when it could be earning me 1.8% in my etrade savings... bleh!

Any account you own. You DO have to document the account transfers to show that the payment ultimately came from an account you own and that you had access to the money for 90 days.

 

[Genx87]

Originally posted by: swbsam
I'm so confused, sorry for asking here vs. "professionals" - I'm getting so much contradictory information!

We're well into the process of buying a home (deposit made, contract signed) and our mortgage company now tells me (months in!) that I need to have 3.5% of the purchase price of my home in a bank account, for at least 90 days. Since we had no idea that this was necessary and assumed that my parents' gift (over 6% of the purchase price) was enough, we're a bit confused now..

He said a work around would be to add my name to my parents' account, where the funds (the 6%) have already been hanging out.

Is this true?

Is he trying to tie in another party for payment should the loan fail?

 

[OCGuy]

Originally posted by: ShockwaveVT

Originally posted by: Ocguy31

Originally posted by: ShockwaveVT

#2 The thing about having the 3.5% balance in an account for 90+ days smells like B.S. to me. Perhaps that lender is running scared of defaults or something.. but the loan is FHA insured, they shouldn't put you through that kind of crap. If you have any other pre-approvals still active, inquire with them and make it clear to your current lender that you have other options for financing.

In order to prove that the money is yours, and not given to you at the last second, the lender does a Verification of Deposit. This shows your current and 60-90 day average balance. If the current balance is too far above your average balance, they figure that money is not yours.

That seems kinda lame to me. What if the $$ was in your numbered Swiss account? 😉

Does the money have to be in the account that the down payment is drawn from, or just any account in your name? I'm looking to buy via FHA in the next 4-6 months and I don't want a big chunk of cash wasting away in my checking account when it could be earning me 1.8% in my e-trade savings... bleh!

You could bring in the funds to close from your e-trade account, or you could transfer the funds to your regular checking when it is time, and bring proof of the transfer to your lender.

Unless, as Sacto pointed out, you have a blood relative willing to write a letter, jump through some hoops.

FHA 3.5% down is the hot ticket right now. I am doing pretty well this year for only being March :thumbsup:

About 15% of my loan cabinet are FHA purchases right now.

 

[DannyLove]

Originally posted by: sactoking
Here's the deal:

FHA requires the money to be in your bank account for 90 days OR proof that the money came from your regular earnings. They don't want you borrowing the money for the down payment. Even something like selling a car or selling stock for the down payment is prohibited.

This is important for any new buyer. If you have regular earnings, ie, a stable job, you don't have to worry about this requirement because you already know you make enough for a simple down payment. Something tells me the OP doesn't have the appropriate funds and the lender (didn't notice cause they only are interested in back-end commission) that now it is too late. OP better pray your contingency period is detailed, otherwise you won't get funded, and you won't get your deposit back.

sactoking: Thanks for clearing up the gift question, I knew something was eliminated during that time period.

 

[sactoking]

Here is a good article on gifts from family.

Here is a less good one.

Here is an ok one.

This is from HUD itself:

Smaller downpayment: FHA-insured loans have a low 3.5% downpayment and the money can come from a family member, employer or charitable organization as a gift.

 

[ShockwaveVT]

OK cool, that's not a big hassle then.

Another question for you guys... Say I qualify for the $8,000 first-time home buyer tax credit. Upon purchase of the home, I would file an amended 2008 tax return upon purchase to get the credit ASAP. I was planning on using this tax credit to boost my down payment by taking a cash advance off of my credit card for the amount of my credit, (or just a basic short-term personal loan). But it sounds like that would be frowned upon since I'd be taking a loan (very short term 3-6 weeks) on part of my down payment?

 

[bignateyk]

Originally posted by: ShockwaveVT
OK cool, that's not a big hassle then.

Another question for you guys... Say I qualify for the $8,000 first-time home buyer tax credit. Upon purchase of the home, I would file an amended 2008 tax return upon purchase to get the credit ASAP. I was planning on using this tax credit to boost my down payment by taking a cash advance off of my credit card for the amount of my credit, (or just a basic short-term personal loan). But it sounds like that would be frowned upon since I'd be taking a loan (very short term 3-6 weeks) on part of my down payment?

I think you have to have closed on the home before April 15th to be able to amend your 2008 return to get the 8K this year.

 

[mugs]

Originally posted by: ShockwaveVT
OK cool, that's not a big hassle then.

Another question for you guys... Say I qualify for the $8,000 first-time home buyer tax credit. Upon purchase of the home, I would file an amended 2008 tax return upon purchase to get the credit ASAP. I was planning on using this tax credit to boost my down payment by taking a cash advance off of my credit card for the amount of my credit, (or just a basic short-term personal loan). But it sounds like that would be frowned upon since I'd be taking a loan (very short term 3-6 weeks) on part of my down payment?

You can do that? Why would the credit be part of the 2008 tax return, it's not valid on homes purchased in 2008.

 

[sactoking]

Originally posted by: ShockwaveVT
OK cool, that's not a big hassle then.

Another question for you guys... Say I qualify for the $8,000 first-time home buyer tax credit. Upon purchase of the home, I would file an amended 2008 tax return upon purchase to get the credit ASAP. I was planning on using this tax credit to boost my down payment by taking a cash advance off of my credit card for the amount of my credit, (or just a basic short-term personal loan). But it sounds like that would be frowned upon since I'd be taking a loan (very short term 3-6 weeks) on part of my down payment?

Here's the thing: your loan will likely be sold withing 90 days of closing. Go ahead and file your 2008 1040x and collect the $8000. Wait until you get the notice of your loan being sold, then make an extra $8000 principal payment to the new loan company.

It won't affect your payment rate (i.e. monthly payment) but that's really the only way to do it. FHA doesn't verify that the 3.5% is coming from an acceptable source, they verify that the ENTIRE down payment is from an acceptable source. If you had, hypothetically, 3.499999999999999% of a down payment and wanted to put like $20 on your credit card, you'd be denied a loan.