Can I Borrow Money From My Children For My Down Payment?

My three-year-old daughter has a coin purse her Pop gave to her complete with $2.50.  She calls this money her “tickets.”  One time I was driving on the expressway and my E-Zpass was not in my car as my husband had borrowed it.  I needed 75 cents and I had no cash.  It took some major convincing, but I was able to trade a promise for a future treat to borrow 75 cents tickets from my daughter.  And, yes, I have since paid her back. Believe it or not, I’m in good company as this Time article reports between 30%-50% of parents borrow money from their kids–and most do not return it.

Borrowing Money from Your Children To Buy a House

Unfortunately, lenders are a little more particular about source of funds than the Virginia Department of Transportation.  Borrowers are not allowed to use funds from custodial accounts established for children or other individuals. Once the funds have been deposited into a custodial account, they are not legally permitted to be taken back; the funds now belong to the ‘child’ or ‘other’ person.  However, a custodial account set up for a borrower who was a minor at the time the account was established is eligible for closing costs or reserves once the borrower reaches the legal age and has unrestricted access to the funds.

Where Can You Get Down Payment Funds (if not from your child’s piggy bank)?

  • Your checking or savings account
  • 401k
  • Stocks and bonds
  • IRAs
  • Trust accounts
  • Income tax refund
  • Proceeds from the sale of a property
  • Sale of personal property
  • Inheritance
  • Cash value of life insurance policy
  • Gifts from a relative, close friend, employer, labor union, charitable organization or a government agencypublic entity who provides home ownership assistance

Seasoning Your Funds

Something important to remember is that your mortgage lender will only need your most recent two months of bank statements before closing. Any funds that are deposited into your account before these statements will not be investigated as the loan officer and underwriter will not see them–and, we cannot ask you to source deposits we don’t know about.

So, if you have cash under your mattress you would like to use (this happens more often than you would think) or you want to get around the documentation required for gift funds, sale of personal property, etc., my advice is to get the funds into your account 2-3 months before you need to show bank statements to the underwriter.  These funds have been “seasoned” and will not need to be sourced.  You will save yourself a lot of paperwork.

This topic is another reason why meeting with a loan officer 6-12 months out from buying a house is helpful.  We can give you tips on preparing your finances so that the underwriting process goes much more smoothly.  Most homebuyers have no idea what funds can be used for a down payment and what funds are off limits.

If you have a question about down payments or mortgages in general, don’t hesitate to email or call me at 804.386.9364.

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