Is a gift of equity allowed on VA loans?
VA: The VA has no specific guidelines on gifts of equity, but gift funds are generally not allowed for reserves. However, they can be used for your down payment and closing costs, including the VA funding fee.
4. Gift tax: A gift of equity could trigger the gift tax, so the seller should follow Internal Revenue Service gift guidelines. For 2024, a married couple can give up to $36,000, and a single person up to $18,000 to an individual per year without being subject to the gift tax.
Whether you're a VA loan borrower or someone interested in taking over another person's VA loan, you may wonder if the mortgage can transfer from one person to another. The answer is yes—qualified buyers can assume responsibility for a VA home loan through a process called VA loan assumption.
The reserve funds must be in the borrower's account before the new VA loan closes. Gift funds cannot be used to meet reserve requirements.
In the case of a family gift, the amount is disclosed as an “other credit” in the cost to close section of the Loan Estimate (LE) and the Closing Disclosure (CD).
No money changes hands between the two parties. Instead, the gift creates equity in the home for the buyer. Then, when it comes time to get a mortgage, that equity serves as the buyer's down payment rather than having to put down cash. Gifts of equity can also be used for closing costs.
A gift of equity occurs when the home seller agrees on a price significantly lower than the home's appraised value. The difference between the property value and the sale price is the “gift.” This helps cover the buyer's down payment.
Borrowers with VA loans through Veterans United have the option to transfer their loans to another eligible individual, subject to VA approval. However, assumability does not apply to other loan types offered by Veterans United, such as conventional and FHA loans.
Instead of applying for a VA loan outright, the child of a veteran may be able to take over an existing mortgage. This is called a VA loan assumption.
To further support Veterans and their loved ones, the VA allows civilians to assume, or take over, an existing VA loan. So even if you are not in the military, a Veteran or surviving spouse, you may be eligible to assume a VA loan.
Who can give a gift for VA loans?
The gifted money needs to come from somebody or some entity close to the borrowers. Lenders need paper trails for the gift money, which implies you can't just have someone hand you a bunch of cash for your loan closing. Nobody involved in the VA loan process can gift you money for such purposes.
According to the VA official site, the surviving spouse, where applicable, would assume the debt. In cases where the borrower dies but has no co-borrower or surviving spouse, the veteran's estate would be responsible for the VA guaranteed mortgage.
Many times they'll also need cash reserves. In these situations, Veterans United currently requires six months' worth of mortgage payments in cash reserves. The same is typically true for buyers who want to count income from an existing rental property they never occupied.
Gifts of equity, like other gifts, aren't taxable to the recipient. The seller might have to file a gift return. They're allowed to give $15,000 per person each year without having to file a gift return. So, if the gift of equity they gave you is less than $30,000, they don't have to file the return.
A Gift Letter
This letter states the amount of equity that the sellers are gifting along with the address of the property. The letter also lists the relationship between the owners and the buyers and must include a statement that the equity is a gift, one that the buyers don't have to repay.
Can my parents give me $100,000? Your parents can each give you up to $17,000 each in 2023 and it isn't taxed. However, any amount that exceeds that will need to be reported to the IRS by your parents and will count against their lifetime limit of $12.9 million.
Is there a limit on how much money you can receive? Not many loan programs or lenders dictate how much money can be gifted for a down payment, but there might be tax implications for the giver. For 2024, an individual can gift up to $18,000 without any tax consequences.
It's worth mentioning here that you cannot repay gift money used for a down payment. A gift repaid ceases to be a gift and becomes a loan. It is crucial that both the donor and recipient understand a down payment gift is not a loan.
Capital gains tax
For the buyer, receiving a gift of equity can lead to owing more in capital gains taxes when they eventually sell the home. That's because capital gains tax is charged on the profit from a sale of property, and a lower purchase price can result in higher profit.
The perfect memento helps your clients celebrate their home buying or selling success—and makes you memorable, too. At the end of the real estate transaction, many agents offer their clients a closing gift—a token of appreciation that leaves a positive, lasting impression.
How do I avoid gift tax?
- Respect the annual gift tax limit. ...
- Take advantage of the lifetime gift tax exclusion. ...
- Spread a gift out between years. ...
- Leverage marriage in giving gifts. ...
- Provide a gift directly for medical expenses. ...
- Provide a gift directly for education expenses. ...
- Consider gifting appreciated assets.
Assumption flexibility: One of the most appealing aspects of a VA loan that is assumable is that it can be assumed by someone who does not have military experience or is a veteran. This means as long as an individual qualifies financially, they are typically capable of assuming a VA loan in most situations.
No, military spouses are not eligible for VA loans on their own. In almost all cases, the VA-eligible Veteran must be the primary borrower. However, surviving spouses may be eligible for a VA loan, typically if they haven't remarried and their spouse died in the line of duty or due to a service-connected disability.
If you're a Veteran and want to apply for a VA mortgage with your friend, then a joint VA loan might be the right way to go. The joint VA loan program allows Veterans and/or active-duty military members to use a joint borrower who is not a spouse or other Veteran.
Yes, this is possible. In fact, family members are not the only ones who may be able to be an owner or a home with a VA loan. Any person having a good credit report can join a Veteran in using his or her VA benefits either by adding them as a co borrower or merely a co-owner of the home.
