Mortgage Down Payment Wedding Gift: Is It Tacky?

Down Payments Turbo-Charged By Gifts

Saving a down payment is often cited as the single biggest obstacle to homeownership. But you don’t have to go it alone. The mortgage down payment wedding gift is now a thing.

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A 2016 National Association of Realtors (NAR) study asked first-time buyers about their down payments. And nearly one in four named gifts from family and friends as their second most popular source, after their own savings.

How To Ask Without Looking Greedy

Those who are getting married while they’re saving up have a real opportunity to boost their fund, because they can legitimately ask their wedding guests to help them save for their home. And more and more are doing so.

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However, there are some practical issues and cultural sensibilities to bear in mind. So read on to discover how you can navigate those.

Culture Cash

In countless nations, cash or checks have always been the most usual wedding gift. And they’re common within many cultures in America, including Jewish, Chinese and Hindu communities.

But many Americans outside those groups have traditionally viewed money as somehow “tacky.” Wedding guests were expected to bring or send something three-dimensional and lavishly wrapped.

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You may feel such norms are wildly outdated. But you need to realize that some of your older, more conservative friends and relations might cling to them. So make them feel comfortable if they prefer to bring you a toaster or stemware you’ll never use.

Those Hoops...

Lenders are always worried that a sum you say is a gift is actually a loan. If you are secretly paying back your parents or friends for a chunk of your down payment, that will undermine all the careful calculations that were made to make sure you could afford your mortgage.

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So your lender will want you to prove your gifts really are gifts. And, with big sums, they may want proof of the source of the money. This is bad news, but only if your home purchase is part of a sophisticated money laundering operation.

Bottom line, you need to carefully (nay, obsessively) document your gifts.

A New Sort Of Wedding Gift Registry

In recent years, a new sort of online wedding gift registry has sprung up. These are specifically designed to pass on cash gifts to you (minus a small processing fee) for your mortgage down payment.

And good ones will provide you with the documentary proof you need to satisfy a lender that your gifts aren’t actually loans. All you have to do is set up your account online, spread the word to your guests and friends (don’t forget social media) and watch the money roll in.

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One founder of one of these registries told Realtor.com a couple of years ago, “the average U.S. wedding registry hovers between $8,000 and $8,500.” Might that sort of money see you in a new home sooner than you thought?

Of course, you must satisfy yourself that any registry you choose does document your gifts appropriately, and is reputable and financially sound.

FHA Homeownership Bridal Registry Accounts

If you want an FHA loan, and know who your lender will be, you can ask it to set up a bridal registry account. This will accept your gifts and even pay you some interest.

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Given that your lender is operating your registry, it may well have fewer questions about its content.

If You Don’t Want A Registry

You may prefer to do your crowdsourcing offline. If so, you need to let your guests know what you want — while allowing them to choose more traditional alternatives.

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You’ll also have to take on the administrative task of documenting your gifts. This is especially important for larger sums. Smaller ones you can allocate to your closing costs or other purchase expenses, where restrictions don’t apply.

Document

For money you will apply to your down payment, have the donor give you a letter confirming that the money is not a loan. Legal website NOLO has a sample gift letter you can cut and paste.

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For bigger sums, a donor may have to provide a copy of a bank or other statement showing where the money came from, and possibly even proof of its original source. You might want to warn him or her!

Other Practicalities

Here are six tips that could save you hassle later:

1. If someone gives you $14,000 or more (that’s the 2017 figure), the gift should be reported to the IRS and is likely to be taxable. Your lender may want proof that’s been done.

2. Except when using a registry, use checks and wire transfers when possible. They provide a clear paper trail and you should keep copies of the paperwork.

3. Try to get the money into your account before you make your mortgage application.

4. Big gifts from friends may be a problem. Lenders are generally happy to believe that your close relatives love you that much. But they worry friends and distant cousins will expect to be repaid.

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5. Some individual lenders and types of mortgage may require you to use your own money and not gifts for your down payment. This does NOT apply to FHA loans, and those from Freddie or Fannie usually require you to provide only a small proportion. Check with your lender over its policy. And shop around for a more sympathetic one if yours is unreasonable.

6. A lender may be cool about your borrowing money from a friend or relative for your down payment. But you must declare it on your application and the payment will be included in your debt-to-income ratio.

Weddings and gifts go hand-in-hand. And today, it’s increasingly acceptable for those gifts to take the form of money towards your home purchase.

What Are Today’s Mortgage Rates?

Current mortgage rates are low enough to make buying your first home together an affordable proposition in most areas. To save as much as you can, compare mortgage quotes from several competing lenders — while asking them abut their policy regarding gifts.