The VA home loan program boasts a ton of incredible benefits, but the two biggest might be these: Qualified borrowers can purchase a home with no money down, and there’s no cap on how much a seller can pay toward your closing costs.
Unfortunately, in terms of the latter, there’s no guarantee that you’ll get a seller to agree to pay all of those costs. It’s certainly a common outcome, especially in a buyer’s market, but every purchasing situation is different. You can roll the VA Funding Fee into the loan — or not pay it at all if you have a service-connected disability — but otherwise those costs have to be paid before the loan can close.
So what happens if you’re on the hook for at least a portion of those costs?
There are a couple different potential solutions. One is that you might be able to pay those costs using gift funds from a family member or close friend.
Using Gift Funds
Gift funds are exactly what they sound like — someone gives you a chunk of change with no strings attached. But there are certain rules and requirements for all loan types, from VA and FHA to USDA and conventional, when it comes to using someone else’s money toward your home purchase.
Here’s a look at some of the big requirements you’ll need to hit to use gift funds on a VA home loan:
- You can’t just get a wad of cash. You must be able to document that the gift funds come from an acceptable source — a family member or someone with a family-like relationship — with a legitimate paper trail via a bank account or financial institution.
- A canceled check is proof enough in terms of documentation. Unlike other loan programs, you don’t need what’s called a “gifter bank statement” in order to satisfy the VA or lenders.
- No one involved in the loan transaction, including the lender, can be the source of the funds.
You’ll typically need a letter to accompany the use of gift funds. The letter should include all of the donor’s pertinent information; the dollar amount and date of fund transfer; and specific language making it clear no repayment is expected.
Other Loan Types
Many of the requirements are the same for other loan types. But there are some unique differences that are important to note.
For example, you’ll need to have a gifter bank statement on FHA loans. Borrowers seeking a conventional loan who can’t put down at least 20 percent must have at least 5 percent of their own funds in the loan. USDA borrowers can receive gift funds from charitable organizations, nonprofits and even municipalities.
Learn more about VA closing costs and what might be possible using your VA home loan benefits — talk with a Veterans United loan specialist at 855-524-7279.
Photo courtesy of Cristiano Betta