Gifted deposit letter
A gifted deposit letter is reliable money given to a homebuyer by somebody, commonly a family member in some or full amount towards their deposit. The deed of gift is required by the mortgage lender during the conveyancing process. This is to validate the money to ensure it is neither a repayable loan nor borrowed off from credit cards. A gifted letter is usually accompanied by the gifted address, proof of ID and proof of funds for it to be a complete document.
The declaration from the gifting party about the given deposit should be sufficient and supported by the trusted statement.
How does a gift deposit work?
A gifted deposit undergoes various processes for it to be considered valid. It considers that only specifics can gift a deposit. For this, you will have to consult a mortgage advisor about which kind of gift deposit is allowed. You also have to make sure all the recommendations are attained. Furthermore, the gifted amount has to be in your account for a given period for it to settle. Also, a non-refundable statement is expected for this. Most of all, ensure all the transactions made can be accounted for and are secured. This means the letter only works under the provision of a solid statement. That is why there are stages to be followed when using gift deposits when buying a house.
Stages of a gifted deposit letter
Proof of relationship and address
Both parties, the giver and the receiver of the gift to provide their purpose and nature of the relationship. Their full names to be declared in the letter. Specifics mortgage lenders ask for a statutory declaration to serve as sincere proof.
The letter should provide a declaration of the gift amount from the parties. All the money towards the purchase should be included. Purchase costs and the gifted deposit are among the mentions. The amount stated should be reasonable to avoid room for doubts. Moreover, the gifted amount stated should be similar from both parties for easy accountability in case of tracing. They include the exact date, name of the parties and the right amount of the gifted deposit.
The motive of the gift
A reason for gifting the money is required. The parties to mention why such an amount is given as a house deposit. Usually, parents opt to support their children when purchasing their first home. They do this out of affection and love for their children. This is so common for them to be their children’s guarantor support. Also, acquiring money from parents to buy a house is the most accepted source of funds. Though, the mortgage lender would want a clear explanation that the parents know what they are into to avoid future inconveniences after the house has been bought. Furthermore, such a gift from a friend may sound uncertain and a good reason may prove otherwise. A clearly stated purpose of the gift establishes a strong mortgage lender’s perspective of your intentions.
The gift is not repayable
Being a gift, it is likely to be non-repayable. This only requires the parties to declare it as a gift and it is an unconditional act of kindness. Hence there is no legal requirement for the money to be refunded. This is to eliminate the potential risk of the gift being claimed bank as a loan. Besides, it clears expectations of the donor of having rights over the property.
In case of the gifted party has a partner, the deposit letter should be referred to the son or daughter. This is to avoid inconveniences such as to what extent does one owns in if the relationship ends. It will be easy for them to figure out and disjoint the property fairly. This consideration can be of help and worth thinking about it A deed of trust can achieve this and is drawn from your lawyer at a reasonable price.
The parties are solvent
Both parties declare they are solvent. This is to confirm they are in no state of being bankrupt as their asses exceed their liabilities. Therefore, in case of bankruptcy, the administrator can authorize the sale of the property to repay the debts. Hence the declaration of being a solvent assures you of owning the property without it being seized.
Independent legal advice
The parties are to attest that they are aware the solicitor is not allowed to provide any legal advice regarding the matter. The parties are to seek liberated financial and legal advice concerning the purchase of the house. The independent legal advice is to explain what it means to be given a large sum of funds and confirm if the parties can afford it.
Signed and witnessed
The deed of gift should be signed by the parties in front of witnesses. The witnesses are in turn to sign the letters. The witness is not supposed to be a benefit of the transaction. This means a family member is out of bounds. A work colleague, neighbour and friend are among the suggested options. An advocate is of use if you are overseas to verify your ID. Though the solicitor varies from firm to firm, be sure to inquire and get in touch with what they will require. They will be requesting different details and the earlier you know you are fortunate to provide exactly what is needed of you.
Is a gifted deposit letter legally binding?
A gift deposit letter is considered a legally binding document if signed for with no intentions of it being a loan. Moreover, it is considered so if the donor verifies it as nothing more than only a gift. The gift letter can also be considered binding and non-binding with defined terms. A binding gift letter needs proof of evidence and the landlord to sign the original letter. A non-binding gift letter carries no legal weight. These two play a major role when the document is to be considered legally enforceable in court. A legally binding gift letter can decline any claims raised for repayment of the deposit over the property as evidence has already been provided.
Gifted document content
The gift deposit letter should include more than one-liner related to the gift. This is necessary for your lawyer to advise and fully convince the mortgage lender that it is only a gift. The mortgage lender needs assurance that the donor has neither legal rights over the property nor gets and refund.
Risks related to a gifted deposit
If the donor dies within 7 years of gifting the deposit, the funds are subjected to inheritance tax. This depends on the size of the property. That is why a bit of independent legal advice should come in to direct the donor before making the gift.
The solvency of the donor also counts. If within 7 years the donor is bankrupt, the gift could then be used to settle all the debts.
If the gifted letter is not legally binding, it cannot be enforced in court hence it is insecure.
Lack of proof for the deposit will render the funds unacceptable and mortgage lenders do not like making transactions related to loans.
As a first-time buyer, affording a house takes a lot of sacrifices and purchasing it with help has been widely accepted. The use of strategies such as gift deposits is necessarily needed. Due to the high cost of living such as rental costs, help from family members and friends make sense. They want to see their relatives off-loaded with many responsibilities so they chip in where they can.
If you follow the gift procedure properly, it won’t be that stressful. The letter should provide all the requirements for your house purchasing request to go through. For beginners, the help of a financial advisor will greatly help guide you through all the processes.