Whether or not you are about to get married, it is always cumbersome and hard to save money towards a downpayment on a home.
So, when you are planning to get married, instead of creating a list of items and things that can fill a place you will live after you get married, why not give a list that will help you actually purchase a home?
Planning a wedding is exciting and life-changing, with memories and gifts that will hopefully last a lifetime, or at least a long time. What most brides-to-be don't realize is that they can set up a bridal registry to help reach their goal for a downpayment on a home.
Here are two ways you can do this:
- Follow the little known FHA Bridal Registry program.
- Set up your own Bridal Home Registry program.
The first way, the FHA Bridal Registry program, introduced in 1996 by the U.S. Department of Housing and Urban Development, lets you receive money as a wedding present that can be used towards the downpayment on a home. Your friends and family — all your wedding participants — can make gift payments into an interest bearing account on your behalf. Your gifts earn interest and can be used towards an FHA loan, which is a popular loan to use today because of its low 3.5 percent downpayment requirements.
Here are the FHA Bridal Registry Program facts:
- You will open a savings account — as a Bridal Registry Account — at your local bank prior to the wedding.
- Friends and family will be given the banking information where the gifts will be deposited. According to the program, funds may be deposited by friends and relatives directly into the Bridal Registry Account, or given by cash or check to the couples or individuals for deposit.
- All of the gift funds can go towards the FHA required 3.5 percent downpayment.
- Anyone with an interest in the purchase of the home cannot be party to the gift funds.
- Maintain a ledger (register) listing the dollar amount, name of the donor(s), and date for each monetary gift given to the bridal registry.
- The bride/groom must supply copies of the bridal registry bank statements to their mortgage lender, verifying the deposits showing in their Bridal Registry ledger.
- Bridal couples or individuals are not obligated to use the money in the Bridal Registry Account for a downpayment on a home. The couples or individuals control how the funds will be used, and if plans change, the money can simply be withdrawn and used for something else.
- There is no requirement that you be married prior to closing on your new home.
"The key to making the FHA Bridal Registry work is opening the correct account with a local bank," said Erdine Skelton, a home mortgage consultant at Wells Fargo Home Mortgage.
"Some local banks may not be familiar with the HUD letter which gives permission to open these kinds of accounts; I wasn't initially. Brides/grooms wishing to open FHA bridal registry accounts should bring the HUD letter with them, should their bank be unfamiliar with the process."
Skelton stressed that a separate savings account must be established at their bank (FDIC or NCUA insured) to use as a bridal registry account; the bride/groom cannot "co-mingle" these funds into their own checking/savings accounts.
She continued to say that in addition to the ledger, the bride/groom and mortgage loan officer must also provide a letter — at the time of the mortgage application — that states all monetary gifts were made by friends/relatives who do not have a financial interest in the real estate transaction, nor were any gifts given by the seller of the home or the real estate agent(s).
When I was brainstorming home purchase options with a new client a few weeks ago, I came across information about the FHA Bridal Registry program. I called around to seven mortgage consultants and loan officers from the big banks to the local lenders and was surprised no one immediately knew what I was talking about. Some of them have been in business for about three years and others for 30 years or more: no one knew of this program.
Once they did some checking, they were happily surprised it existed but couldn't answer why it seems people don't use it much.
After my research I found that not all banks and lenders support this program so you must always ask first before starting your mortgage loan application.
"I've been in mortgage and title related businesses since 1973 and this was the first I had heard of this program," said John R. Izzolino, senior mortgage consultant at Omega Financial Services, Inc., a direct lender.
"We do support it and looking at the overall concept I would suggest people establish priorities right now. I mean, what's more important; having a big wedding, a big new Lexus, or taking advantage of this key time when people are giving you gifts and use it towards a downpayment on a home in a market where prices and rates are so low?"
The second way you can do what I will call a Bridal Home Registry is to set up your own program.
Just have a separate savings account, or not, and let your guests near or far know you have created a Bridal Home Registry to help in the purchase of your home and all monetary gifts mailed or given to you will be deposited to go towards this.
"Keep a ledger and make copies of the front and back of any checks you receive so you can show the source of the deposit," said Fred Burt, a senior loan officer at Superior Mortgage Corp., a direct lender. "If it's cash, you will need to have an explanation letter and possibly proof of withdrawal from the gift donor's account."
Normally when a person gets a mortgage loan, the bank or lender always has to track where the downpayment money is coming from. If it is "seasoned" — it has been in your bank account for more than 60 days — documentation is not needed and neither of the options I'm discussing really matters, according to the mortgage consultants I spoke with.
If it has not been in your account for at least 60 days, that's where you have to be more diligent and careful and use something like one of the ways being discussed here.
Usually when the buyer receives money towards a downpayment from someone, a gift letter needs to be completed and signed by the person giving the money. The buyer has to do this for each and every amount received. The buyer also has to document where the gift came from via a copy of the gift check and/or withdrawal documentation. Questions may also arise as to why the buyer needed the gift funds and whether this was a sign of the buyer's ability to afford the home. When it's a wedding gift, things are treated a little differently and easier, but you will still need some documentation as discussed above.
Amounts matter, too, so always consult with a mortgage person.
"If they, for example, have a wedding gift that's a $20,000 check, in addition to a copy of the front and back of the check, most lenders will ask for a copy of the marriage certificate or if they are not married yet, the wedding invitation or something that proves they're actually getting married," Burt said.
Izzolino also noted that when you're talking about a significant amount money from one person as a gift, it may just be easier to do a separate, standalone gift letter.
Whether you go the formal FHA Bridal Registry program route or the informal one I call the Bridal Home Registry, know this type of registry is a possibility and you don't have to be a first-time homebuyer to do this, either. So, think about it, if you are simultaneously planning for a wedding and a home purchase, why not get money towards the home purchase instead of getting another vase or waffle maker to go in the home you don't yet own?
Walk down the aisle ... then directly to your home.