How Helping Can Hurt

Buying a new home is a big step for anyone. Part of the American Dream tends to be described as owning your own home in the suburbs. But with housing prices high and a required 5 percent down to purchase a home with a conventional loan, many individuals look to their families for money to make their down payment.

Part of the mortgage application process includes verifying where down payment funds come from. If money is received from a family member then a document specifying the funds as a gift must be signed by both parties. However, what happens if money is received from family with the understanding that it must be paid back in full?

Is This Mortgage Fraud?

This grey area causes two separate problems. First, by saying the money is a gift, the home buyer appears to have less debt than they actually have. The unofficial loan of the down payment may increase the buyer’s debt load to a point where a bank would deny a home loan if the money had been on the record. Second, the signed gift letter included in the home loan process specifically states that the money is a gift with no obligation to pay the money back.

Is a Gift Letter Legally Binding?

Because the paperwork for your loan is entered into the record, a gift letter is then a legally binding document that when signed with the intent of the money as a loan, the buyer is lying. For all intents and purposes, this is a form of mortgage and bank fraud.

What should one do instead?

Individuals have a couple different options when it comes to finding the money for a down payment on a home. Consider taking the time to continue renting in order to save the money for a down payment independent of any gift. If a financial gift is needed, try to keep it as just that.

You can also take advantage of any first time home buyer programs in your area. Be sure to check with your realtor because you may qualify for assistance depending on your circumstances. Many of these programs will help with the initial down payment if you fall into certain income brackets and others can do away with mortgage insurance, lowering the cost of your monthly payments. These programs vary from state to state, so be sure to check with your realtor for specifics in your area.

How Can We Help?

If worse comes to worse, hiring a defense attorney to help you protect your assets and yourself from fines and possible prosecution might be the answer. Regardless of the situation that you’re up against, you can count on the team at the Law Offices of Robert J. DeGroot to be there for you when you need help the most. Contact us today to get the help you need.