When home buyers think about down payment assistance, it’s usually grants and short-term loans that come to mind.

But there is another form of down payment assistance available for home buyers in New Jersey, and it comes from a source closer to home. We’re talking about down payment gifts from family members, close friends, and other approved sources. This is one way to remove some of the financial hurdles associated with a home purchase.

Here’s what you should know about getting down payment assistance in New Jersey from parents, family members, or other donors.

The Bank of Mom and Dad?

A lot of the mortgage programs available in New Jersey today allow for down payment gift money to be provided by a third party. This is where the home buyer obtains money from a family member (or some other approved source) to cover some or all of the down payment expense. It’s a great way to reduce your upfront, out-of-pocket costs when buying a home in New Jersey.

There are several different loan programs that allow this kind of down payment assistance in New Jersey. Both FHA and conventional mortgage loans allow gift money contributions from third parties, though the rules and requirements can vary.

There are a lot of myths and misconceptions regarding down payment requirements in New Jersey. For example, a survey conducted by the National Association of REALTORS® found that many people think they have to put down at least 20% when buying a house.

Clearly, this upfront investment is one of the most misunderstood topics relating to the New Jersey home buying process. The truth is that there are several low-down-payment mortgage options available today, and some of them allow gift money to be provided by a third-party source.

Down Payment Assistance in New Jersey: The Gift Option

The process of getting down payment help from parents or other family members is fairly straightforward. Here are the basic steps involved:

• First, speak to a mortgage company (like us) to find out which types of home loans allow for down payment gifts from family. It’s important to explore all of your financing options before making a decision, and we can help you do this.
• The next step is for the donor to provide funds to the home buyer, usually in the form of a check donated to the borrower’s bank account. The mortgage underwriter will later review this deposit to make sure it is fully documented, as mentioned below.
• The family member (or other person) who is providing the down payment assistance money must also produce a letter that states they do not expect any form of repayment. In other words, it must truly be a gift — not an interpersonal loan.

After that, the mortgage process moves forward just as it would if the home buyers were using their own down payment funds. The loan will move into the underwriting stage, additional documents might be required, and then the home buyers will proceed to closing.

Exploring All of Your Mortgage Options

The key takeaway here is that today’s mortgage industry is more flexible and diverse than most people realize. Home buyers in New Jersey have a lot of options when it comes to their financing, and that includes getting down payment assistance from parents, other family members, or even employers.

Additionally, there are certain home loan programs that offer lower down payments than others.

• The FHA program, which is very popular with first-time buyers in New Jersey, allows for a down payment as low as 3.5% of the purchase price or appraised value.
• Conventional loans also allow for relatively low down payments, in some cases.
• And then there’s the VA loan program for military members and veterans, which provides 100% financing for eligible borrowers.

The point is, it’s important to explore all of your options when shopping for a home loan in New Jersey. And that’s an area where we can help you. Please contact us if you have any questions about using down payment assistance gift money in New Jersey, or any other mortgage-related questions. We look forward to helping you.