What to Know About Down Payment Gifts
There are many rules and regulations when buying a home through a lender. For example, your lender needs to know the source of your down payment money. If you are considering giving or receiving any down payment assistance, here’s a breakdown of common rules and requirements.
What Are Down Payment Gifts?
A down payment gift is money that a buyer receives from someone else to use toward a down payment or closing costs during a home purchase. Down payment gifts do not need to be paid back.
Gift Rules and Gift Letters
Different loan types have different restrictions on who can provide financial gifts, how those gifts can be used, and how they need to be documented. Regardless of loan type, most lenders require a gift letter that documents the details of who is gifting the money, what their relationship is to the buyer, and how much is being given. This letter also states that money does not need to be repaid and must be signed by the donor. Verification of sufficient funds and documentation of fund transfer is often required as well.
Conventional Loan Gift Rules
Conventional loan lenders often allow buyers to use gift money for down payments, closing costs, or financial reserves. However, sources of gift money are restricted to romantic partners and family members. Down payment gifts on conventional loans cannot be used for investment properties.
FHA Loan Gift Rules
Federal Housing Administration (FHA) loans allow buyers to use gift money to pay for closing costs, mortgage expenses, or down payments. Friends, family, employers, and other entities can gift this money. In addition to a gift letter, you need to provide evidence of both withdrawal from the source account and deposit to your account.
In Canada, while the Canada Mortgage and Housing Corporation (CMHC) does not offer loans directly, they provide insurance for mortgage loans that can facilitate gifts for down payments. Like FHA loans, these gifts can come from various sources with proper documentation.
USDA Loan Gift Rules
United States Department of Agriculture (USDA) loans offer unique benefits to buyers in rural areas by requiring zero money down on the purchase of a property. As such, gift funds aren’t often used toward a down payment for USDA loans, but it can be used to pay for some or all of the loan's closing costs. This money cannot be used as financial reserves to help you make mortgage payments. Gifts for a USDA loan can come only from family members, employers, a labor union, a charitable organization, or a homeowners assistance program.
VA Loan Gift Rules
Like USDA loans, you are not required to make a down payment when applying for a Veteran’s Affairs (VA) loan. You can use gift funds if you decide to make a down payment or would like to cover your closing costs. You can also use this money to pay for the funding fee that is often required with this type of loan. Almost any person can gift you this money.
In Canada, Canadian Forces members may have similar benefits, with provisions allowing gifts to cover various mortgage-related expenses.
If you are considering using a financial gift to purchase a home, speak with your lender about their gift rules before applying.
The Transformation of Empty Offices
One of the lasting impacts of the COVID-19 pandemic is that over 25% of households have at least one person working remotely. This leaves a lot of vacancies in office buildings that were previously bustling with in-person workers. While many of these offices have remained empty for months, some have been developed for alternative use. Here's a closer look at what's happening to empty office spaces.
Affordable Housing
Many, especially those living in urban areas, have felt the squeeze of affordable housing. To alleviate rising home prices and offer more affordable housing, the government has launched an initiative to transform empty office spaces into affordable housing. This effort is focused on creating housing near transportation hubs, which includes subway stations and bus terminals. Not only will this effort result in more affordable housing, but it is expected to revitalize metropolitan areas that have emptied over the last 3 years.
Residential Spaces
Housing inventory remains low, but demand remains high, so some building owners are seizing this opportunity to convert their empty offices into residential spaces. While there are challenges that come with converting office buildings into multifamily residential properties – plumbing, windows, and HVAC for each unit – property owners can benefit from not having to build from scratch.
Coworking Spaces
Property owners are also converting vacant offices into coworking spaces. Coworking spaces are attractive to work-from-home-ers who are looking for a change of scenery or collaboration one or two days per week. Additionally, small businesses and sole proprietorships are moving to coworking spaces to avoid the high overheads that occur when leasing a centralized office. A bonus for building owners is that coworking offices are rented out on a short-term basis and can generate higher revenue than traditional offices. However, managing a coworking space and keeping it at capacity (and profitable) can be a challenge.
Trending: Vertical Farms
Although less common than affordable housing and coworking spaces, empty offices are also being converted into vertical farms. During the 21st century, vertical farming has become increasingly common in urban areas where open land is scarce. Vertical farming avoids the challenges that occur in traditional farming, such as irregular precipitation and damaging weather. By growing crops indoors and focusing on those that can thrive in this artificial environment, it's possible to mitigate the risks and unpredictability associated with growing crops outside.
With so many offices still lying vacant, there's a good chance that more alternative uses for these properties will be discovered in the coming years.