I’m trying to explain to my co-purchaser, who isn’t a borrower, that his contribution towards the down payment is considered a gift. He added a note to the gift letter stating, ‘this is not a gift, I’m buying 50% of the house.’ I understand his perspective, but I’ve been unable to convince him over the last two days.
In mortgage terms, anyone not on the loan whose funds are used for the down payment is considered to have given a ‘gift.’ It’s a standard practice for simplifying the loan approval process, as lenders primarily evaluate the borrower’s own financials.
If he’s going to be on the title, then technically, it’s not a gift. He has ownership interest in the property, which complicates the classification.
Taliesin said:
If he’s going to be on the title, then technically, it’s not a gift. He has ownership interest in the property, which complicates the classification.
It seems there’s a misunderstanding about the definition of a ‘gift’ versus an investment. If he’s contributing to the down payment and will be on the title, that’s an investment, not a gift. You should clarify this with your loan officer and perhaps seek legal advice to ensure everyone’s interests are protected.
Taliesin said:
If he’s going to be on the title, then technically, it’s not a gift. He has ownership interest in the property, which complicates the classification.
Yes, he will be on the title, but not on the loan, so for underwriting purposes, we need to classify it as a gift.
@Rafe
That’s a common misconception. Being on the title gives him ownership rights, making his payment a contribution towards his own property, not a gift.
Taliesin said:
@Rafe
That’s a common misconception. Being on the title gives him ownership rights, making his payment a contribution towards his own property, not a gift.
This confusion often arises because underwriters request a gift letter to simplify the approval process, even when the contributor gains an ownership stake.
@Will
Exactly, and it’s important to push back on such requirements when they don’t accurately reflect the transaction’s nature.
You can’t call it a gift if he’s buying into the house. This might require more formal agreements to ensure that both your interests are legally safeguarded.
You might need your loan officer to explain the technicalities of mortgage gifts and ownership stakes to him clearly. Sometimes professional clarification helps.
Consider having a mortgage consultant or a lawyer explain the implications of a gift letter and the responsibilities of being on the title to your co-purchaser.
If he’s hesitant, maybe write the terms of your agreement regarding ownership and responsibilities clearly in another document that both of you can sign. This might reassure him.
Sometimes bluntly stating the consequences of not signing the gift letter, such as potentially losing the mortgage approval, can push the matter to resolution.
You might want to consult Fannie Mae’s guidelines on gifts and co-ownership. It’s quite specific about these situations and could provide a clear path forward for both of you.