Buying a home today is an expensive undertaking. It can be challenging to scrape together enough money to afford the down payment on a home. Some homebuyers turn to their parents for assistance with covering the down payment.
It’s great if your parents (or grandparents or other wealthy relatives) can help you afford to purchase the home of your dreams. But if you are not diligent about reporting the source and the terms of your private funding, you could wind up in serious trouble.
Mortgage fraud is a type of bank fraud
Whether you are a first-time homebuyer or an investor looking to land a great deal, there must be complete transparency regarding the source of your funding. If that money from your parent is a loan and not a gifted downpayment officially declared in a mortgage gift letter, failing to declare it as a loan on your mortgage documents is illegal.
Gifted downpayments don’t get repaid
Here’s why it matters. Your mortgage lender determines your creditworthiness in part due to your debt-to-earnings ratio. If you have to repay your parent(s) for their financial contribution to your home or investment property, that amount needs to be considered during the underwriting process when calculating whether you can afford to pay your mortgage note.
Lying exposes both the gifter and giftee to penalties
You may think that no one will ever know that your parents’ monetary “gift” to you was actually a loan. You could be right. But do you really want to roll the dice on a bank fraud charge? If you find yourself in this untenable position, you will need to build a stalwart defense to the charges you face.