How can I use downpayment from my boyfriend if he won't be on the mortgage?
June 29, 2009 9:18 PM   Subscribe

As an unmarried couple trying to buy a condo, the lender seems to have an issue with my boyfriend contributing the down payment, as it is only me on the mortgage.

Even if he submits a 'gift' letter saying that the money is not a loan.

Why is this so complicated? We are two individuals that have been together for 3 years. Having myself alone on the mortgage is the only realistic way to do this, as he has parking tickets that were reported to credit agencies and trashed his credit score, which is why it won't work to have him on the mortgage.

This would be in Chicago. Without his contribution there is no way we can have a significant enough down payment. Is there no way to have just myself on the mortgage, the condo titled in both of our names, and his down payment accepted? ARG!

Happy to answer any questions.
posted by akephalos to Work & Money (21 answers total) 1 user marked this as a favorite
Have you talked to several lenders who all say the same thing? It seems like gifts are one of those things that vary from lender to lender by a little. Or maybe could you get someone to cosign and balance out his credit score?
posted by crinklebat at 9:22 PM on June 29, 2009

Best answer: How do they know where it comes from in the first place? Can you get a joint account, put the money in the account, and use that?
posted by alexei at 9:35 PM on June 29, 2009 [1 favorite]

Out of curiosity, I may find myself in a similar situation with my girlfriend (we're coming up on 3 years and thinking about buying a place) and I'm wondering what lender you are having this issue with so I can be prepared...can you name them? (Apologies if that's something you're not supposed to to home buying).
posted by Elminster24 at 9:42 PM on June 29, 2009

Best answer: alexei, it sounds like they already have a place in mind and are just trying to get the financing. OP, if I'm wrong about this and you're feeling out lenders right now, just have the BF write you a check or do a transfer and leave the money in your account for 3-4 months. Then it'll be on 2-3 statements and the bank won't give a crap where it's from.

I don't know if the joint account hack would work. They still might say that unless it's your money free and clear, you can't put it towards a down payment. I honestly don't understand why a gift letter doesn't is this different from your parents doing the same thing, or a loaded friend?

Elminster24, I recommend you get on this ASAP if you're thinking of buying soonish but haven't started looking in earnest yet. It'll spare you a lot of grief to get your gifts together well before you actually need them because once you can substantiate that you've had the money for 2 statements (I'd do 3 to be safe) there's no gift letter or anything required.
posted by crinklebat at 9:51 PM on June 29, 2009

Best answer: I think all the years of handing out mortgages to everyone, the companies are being overly cautious. Talk to other lenders and see if anyone else will give you less trouble. Be up front with them and disclose anything that the current lender is weary about, it'll save you some time.

For anyone else who might find themselves in this situation in the near future, it would be a good idea to "gift" the money several months ahead so it is in the account of the person who is taking out the mortgage. Consolidate your money and have it sitting in one account for 2-3 months if possible.

I just took out a mortgage and had to jump through hoops in order to get everything approved. Every single dollar had to have some kind of paper trail. They even gave me crap when for a $100 cash deposit and did not count as part of my cushion.
posted by aGee at 9:55 PM on June 29, 2009

Best answer: Most lenders will not accept gifts for down payments that are not from family members because they don't believe that it it really a gift. To them it appears as a side loan that impacts your ability to pay your mortgage. If it isn't a family member, a gift letter doesn't help.

Two options come to mind. The first is to make a joint application for the mortgage. Talk to some lenders to see if your friend's lower credit score might be balanced by the fact that your joint income is higher than your single income.

The second possibility is to have your friend deposit the down payment in your account for three months. Lenders rarely look back farther than three months on bank accounts so you will have the down payment entirely in your account when you apply for a loan.
posted by JackFlash at 9:57 PM on June 29, 2009 [1 favorite]

Another, why doesn't he just give you the money and you make the total down-payment?

If you're both on the title, but only you are on the mortgage, then your nominal equity in the property could well be less than the value of the mortgage - the lender will have no claim over your boyfriend's share of the title if you default on the mortgage and that makes it a very messy process for the lender to be able to recover their money. You're the one who wants to go outside the standard lending arrangements - I'm not surprised that lenders are not willing to cut you much slack on that in this economic climate.

They don't care who pays the mortgage, but they sure as heck care who is on the title and how much equity that person will have in the property. A down payment in your boyfriend's name would pretty clearly indicate that he's a party to the purchase agreement and I wouldn't want that if I was lending you money. Even if your boyfriend paid cash for his half of the property and you obtained a mortgage only for the value of your half, it would still be legally messy for the lender to recover their money if you default.

From a lender's viewpoint, you're going to be high-risk - and from what you've said you are high risk in that you don't have the deposit in your own right and the other person who will be on the title is not a good credit risk. Why lend you $XXX,000 when they can lend it to somebody else who is a lower default risk?
posted by Lolie at 10:10 PM on June 29, 2009

Considering what JackFlash said about gifts from family members being accepted, do you have a family member who will write you a gift letter for the money? Nobody's going to ask where THEY got the money, so your boyfriend could hand them a shoebox full of twenties or whatever.

Disclaimer: I have no idea how legal this is.
posted by mmoncur at 1:50 AM on June 30, 2009

me-mail me and i'll give you the name of the loan officer I used at chicago bancorp

she did wonders with our condo loan, and i wound up on the mortgage myself (with my fiance on the title) at a lower interest rate than what we'd have had together
posted by Oktober at 4:47 AM on June 30, 2009

You and your boyfriend have only been together for three years. This isn't actually considered to be a really long time. The banks are aware that it is real easy to type up a 'gift letter' in order to get approved on a mortgage, and keep their eye out for signs of sketchiness. (Sketchiness = a gift that is not really a gift, but is in fact a loan, or is likely to turn into a loan, if and when you and your boyfriend break up and he wants his money back.)

The fact that he has his own credit problems, the fact that you're not married or related, or that you haven't been living together for a long time as a common-law couple will ring alarm bells that this gift isn't likely to be 'real', whether you beleive it to be or not. If your boyfriend were to demand his money back in a couple years, you would suddenly become a big credit risk, since you'll have a two large debts you can't afford on your own - to your bank, and to an individual.)

(My mortgage broker told me that unless the gift was from an immediate family member - ie a parent or grandparent - that the bank wouldn't consider it a gift. Even with my gifts coming from my grandmother and my father, i was still advised to do the 'put it in your account for three months to make it invisible' thing, in addition to the gift letter. )
posted by Kololo at 5:11 AM on June 30, 2009 [3 favorites]

Lending standards have become more conservative. Your situation may be one which raises red flags for lenders. If that's the case, you can try another lender, but be aware that pretty much every lender out there has tightened up their standards, and, if the situation you describe warrants sufficient concern among lenders, you will find it pretty much impossible to secure financing.

You may not like this, but it may be reality.

It would seem that the best course of action is to call a bunch of different lenders, and ask them about your specific question. If they all say that they can't help you, then you know that lenders won't lend to people in your situation. If this is the case, be content with renting for the foreseeable future and move on with your life.
posted by dfriedman at 6:36 AM on June 30, 2009

Best answer: Have your boyfriend take teh money out of his account and give it to you in CASH. Put it into your account in increments over a few months. Now the money is yours.

Also, have you thought about getting married? Don't do it if you are'nt ready, but alot of people get married for the financial breaks that are given to married couples. You could always elope and have the wedding in a few years when you save up enough for it.

But then again, if you are'nt ready to get married, are you ready for such a big financial entanglement with this person? I've been with my boyfriend for over 3 years and I still refuse to go in on property ownership with him because we are not married.
posted by WeekendJen at 7:48 AM on June 30, 2009

For what it's worth, I was in this exact situation with my finace'. I'm self-employed so my income couldn't count on the mortgage so it was all in his name, but I supplied most of the downpayment. All I had to do was write him a check and sign a "gift letter." The bank wanted a copy of my statement showing that my "gift" money wasn't coming from a loan either, but that was about it.
posted by ninjakins at 7:51 AM on June 30, 2009

Response by poster: We don't have a place specifically in mind yet. I was being proactive talking to a lender to get a feel for the process.

Will holding the funds in my account for 3 months actually work? Has anyone done that successfully? That would probably be the best way to work this..

Unfortunately, as some people here suggested, we cannot get married legally because we are gay. Otherwise, we would have. That is also why I would like him to be on the title, so that he is able to have a claim to the property in the event of my death - as unlikely as that may be.
posted by akephalos at 9:34 AM on June 30, 2009

Response by poster: Thanks for all of the replies. Just to clarify, I have excellent credit and more than adequate income to qualify for the mortgage myself. He would rank slightly lower than average, but adding him would result in a significantly different rate. Without his contribution towards the downpayment, we would be paying PMI and that just sucks, so it's not that we are a high credit risk.
posted by akephalos at 9:50 AM on June 30, 2009

Best answer: Unfortunately, as some people here suggested, we cannot get married legally because we are gay. Otherwise, we would have. That is also why I would like him to be on the title, so that he is able to have a claim to the property in the event of my death - as unlikely as that may be.

You can take care of estate issues via a well-drafted will. Yes, it's a pain in the ass to have to specify everything in writing, but it's what non-traditional couples of many flavours had to do before the rights of traditional married couples were extended to other relationships so there are plenty of legal advisors who can help you with the process.

I don't work in the area of mortgages, but I am a credit analyst. I know that you don't consider yourself high-risk, but each lender develops their own risk profiles in addition to the ones which are standard across the financial services sector as a whole. A lender is going to be much happier with two names on the mortgage if there are two on the title, especially if each of you would be able to service the mortgage on your own. Anything which is going to make it more difficult for the lender to seize and liquidate the asset if you default is going to make getting finance more difficult - if you're perceived as being a greater risk, then you'll pay higher interest, just as you'd pay higher insurance premiums if your insurer perceived you to be a greater risk.

You will be able to find a finance source eventually, but you may very well find that it will be on terms which offset the risk to the lender. Please be really wary of this. People's emotional attachment to the idea of buying a home with their beloved sometimes means they accept terms which they regard as "technicalities" until something goes wrong and those technicalities have a real world impact. Consider how any non-standard terms might apply if you die, become permanently incapacitated or lose you job - or if your partner becomes financially dependent on you for some reason. These aren't "remote possibilities" - they're the kinds of situations in which lenders start pursuing their interests every single day of the week.
posted by Lolie at 11:33 AM on June 30, 2009

Best answer: A couple options:

1) You don't specify exactly how much his contribution is a part of the down payment... is it 50%? If so, consider an 80-10-10 solution. You yourself contribute only 10% down, not 20. you end up with a first mortgage of 80% LTV at a normal interest rate, and a second mortgage of 10% LTV at a slightly higher interest rate. Then, barring prepayment penalties, your boyfriend can supply his contribution by paying off the second mortgage. you would want to take any extra closing costs, etc. into consideration to see if this was financially favorable.

2) Lenders are required to discontinue collecting PMI once the loan reaches 78% of the original appraised value. Again making sure you won't get socked for a partial prepayment penalty, and you're qualified to do so on the merits of your own credit, consider obtaining the loan with whatever lesser down payment you can afford, pay PMI for a month or two, then your boyfriend throws his contribution at the principal balance bringing it below the PMI threshold. Note that I believe the law allows for a lesser percentage... maybe as low as 50%... for high-risk borrowers, but it sounds like you're not in this category.

The tradeoff with option #2 is that you end up with a higher monthly mortgage payment, since the original principal balance will be that much higher, but after applying the boyfriend's contribution you'll be paying down the principal much faster.

3) Nthing getting your boyfriend's contribution into your savings account now, and resuming the looking-for-lenders process in 2-3 months, when nobody will care where the money in your savings came from.
posted by SquidLips at 2:30 PM on June 30, 2009

Response by poster: Here is a question: Would adding myself to his bank account allow us to bypass these issues?

Example scenario: I am preapproved for a loan of $500k based on my own merits. I have $25k in savings, and he has $175k from an inheritance.

Would having him add me to his bank account allow me the usage of those funds to provide the down payment if the mortgage is entirely in my name? We would only use a portion of the funds in his account, but I would be allowed, from his perspective and legally, to use the entirety.

Having him added as a tenant in common/joint tenancy on the deed or lease though seems like a different issue as well, so if anyone can comment on that it would be very helpful.

Lolie: Estate planning is doable I suppose, but what if we did decide to break up at some point in the future? Without being married (and there are no civil unions either in Illinois), estate planning won't protect him in any way... unless he kills me in my sleep before I change my will.. :-)

I kid.. we are both very amicable individuals and I can't imagine either of us would screw the other over like that, but I would prefer that we are both at ease legally in that regard..
posted by akephalos at 7:43 PM on June 30, 2009

One issue to consider if your friend gifts a large down payment to you is the gift tax. There is an annual exclusion of $12,000 which doesn't need to be reported by either of you on a tax return. If he gifts more than than that in one year, he will have to file a gift tax report but he will not owe any tax. There is a lifetime exclusion permitted of $1 million and and excess of $12,000 each year counts toward his lifetime exclusion. It also counts against his estate tax exclusion which is $3.5 million this year. The receiver of a gift never has to pay a tax.

Gift tax.
posted by JackFlash at 8:48 PM on June 30, 2009

Response by poster: Thanks Jack.. I believe it is 13k in 2009, but it seems many/most lenders are not really fans of 'gifts' that don't come from direct family members, and as someone mentioned to me, if you are going by FHA rules, even brothers are not considered direct family members (WTF?).

It is a bit upsetting that a few jerkwads screwed everyone else by getting wonky loans from scams like AmeriDream and their cohorts, which f'ed normal people trying to do legitimate things.
posted by akephalos at 9:20 PM on June 30, 2009

Response by poster: As an update to this thread, in case it helps anyone else, here is what went down:

He added me to his bank account.
The lender had no issue with it.
Only my name is on the mortgage - both of our names are on the title. Lender ended up being fine with this as well.

We got a low fixed rate on a 30yr mortgage, and have already paid 15 principal payments and are well on our way to having it paid off in 15yrs.

Also, our lawyer did mention that if the lender didn't end up allowing up both on the title, that it would have been trivial to do a quit-claim deed after closing to transfer the property into both of our names jointly.
posted by akephalos at 9:17 AM on December 28, 2009

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