How Does The Gift Tax Work When Using Gift Funds To Buy A Home By Raleigh Mortgage Broker Kevin Martini

January 11, 2023 by Kevin Martini

Are you thinking of using gift funds to purchase a new home? It can be a great way to make the dream of homeownership a reality, but most people don’t realize that it comes with its own set of rules and regulations. The gift tax is one such rule – have you heard of it? The Martini Mortgage Group is passionate about helping their clients understand how the process works so they can confidently begin their journey towards homeownership. This special article, will walk through everything you need to know about the gift tax when using gift funds to buy your first home in Raleigh or any city for that matter.

$17,000 Annual Exclusion

Every year, the federal government give each of us allowance to gift anybody $17,000 per year without incurring any gift tax in 2023 – this is up $1,000 from 2022! It is important to note, it is $17,000 per person per year not $17,000 in total.

The good news is that, if you are the one giving the gift, there is no time limit on when you can give it. You can give gifts any time during the year, up to a total of $17,000 for 2023. In other words, you could give $10,000 in February and another $7,000 in December and there would be no gift taxes due.

$12,920,000 Lifetime Exclusion

What most people don’t realize, is that there’s a second allowance of $12,920,000 called the Lifetime Exclusion!

Let me illustrate by example: you want to help your child buy a home and you want to give them $117,000. Wait, that is $100,000 more than what you can give you out of $17,000 annual exclusion – no problem thanks to the Lifetime Exclusion.

With the Lifetime Exclusion and in 2023 the Lifetime Exclusion is $12,920,000 you can use any of it during your lifetime. When you use it, it simply reduces your estate tax exclusion by that amount.

So in our illustration, if you gift you $117,000 to your child, you would take $17,000 out of your Annual Exclusion and $100,000 out of your Lifetime Exclusion. It is critical to highlight, your Annual Exclusion replenishes each year however your Lifetime Exclusion does NOT replenish). With this illustration, assuming it is 2023 and you have never used your Lifetime Exclusion you will have maxed out your 2023 Annual Exclusion for your child and your Lifetime Exclusion would be reduced from $12,920,000 to $12,820,000.

Now, if your estate is less than $12,920,000, this would not be a problem at all, because your heirs would have no estate tax anyhow. However, if my estate is more than $12,920,000 then your heirs would have to pay estate taxes on anything inherited above $12,920,000.

Yes, the Lifetime Exclusion is used for both gift and estate tax purposes. So every time it use it to not pay gift taxes, you’re reducing your estate tax exclusion.

Need To Know By Certified Mortgage Advisor and Raleigh Mortgage Broker Kevin Martini

No Relationship Required: You don’t have to be related to use either the Annual or Lifetime Exclusion. You could gift $17,000 a year to a complete stranger and you would have no gift tax. You can also gift money to a complete stranger using your Lifetime Exclusion, and you would have no gift tax.
No Tax to the Gift Recipient: Everything we just talked about applies to the person GIVING the gift. What about the person RECEIVING the gift? Well, here’s some more good news: there is no tax due by the gift recipient!
$25,840,000 Total Exclusion for Married Couples: One thing to keep in mind about the Lifetime Exclusion is that the amount changes each year. In 2023, the exclusion is $12,920,000, but it is scheduled to go up in the years ahead because it is indexed to inflation. Also, keep in mind that you can ‘port’ over your $12,920,000 to your spouse if I’m married. This would mean, a married couple could have a total joint exclusion of $25,840,000! Hence, if you are married and your net worth is less than $25,840,000, there is absolutely no reason whatsoever for you to concern yourself with the gift tax. That’s because even if you gift your entire net worth during your lifetime, you would pay $0 in gift taxes and your heirs would pay $0 in estate taxes. This is why the gift tax is really a non-issue for most people!
Additional Paperwork May be Required: If you’re using the $17,000 annual bucket, the gift doesn’t need to be reported to the Internal Revenue Service (IRS) if you follow the proper procedures. However, if you’re using the $12,920,000 Lifetime Exclusion, you would need to file a gift tax return with the IRS (even though no gift tax would be due). This is done to simply notify the IRS that you’re using part of your gift/estate tax exclusion.
Use Separate Checks: Make sure the checks are written by the specific individuals who are giving the gift. In other words, if mom is gifting you $17,000, and dad is also gifting you $17,000, you’ll need two separate checks: one from mom and one from dad. NOTE: during the mortgage process, you both may need to “source” these funds from a mortgage underwriting standpoint. Please consult with Martini Mortgage Group before you do anything so that we can discuss the specific details of your situation and make sure this is all done properly.
Eligible Gift Donors With Conventional Loans: “A gift can be provided by: a relative, defined as the borrower’s spouse, child or other dependent, or by any individual who is related to the borrower by blood, marriage, adoption or legal guardianship; or a non-relative that shares a familial relationship defined as a domestic partnership (or relative from a domestic partnership), individual engaged to marry the borrower, former relative or godparent.” Fannie Mae Seller Guide B3-4.3-04 Personal Gifts (12/14/2022)

Being informed and armed with knowledge is vital in making sure that you make the best decision for yourself and your family when it comes to homeownership. The Martini Mortgage Group stands ready to help navigate you through all aspects of this process giving you the confidence needed to purchase your dream home. We are here to carefully explain rules and regulations regarding using gift funds to secure secure the proper mortgage.

Don’t wait any longer – contact the Martini Mortgage Group today!

Kevin Martini

NMLS 143962 | Certified Mortgage Adviso

PLEASE NOTE: THIS OVERVIEW IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE LEGAL, TAX, OR FINANCIAL ADVICE. PLEASE CONSULT WITH A QUALIFIED TAX ADVISOR FOR SPECIFIC ADVICE PERTAINING TO YOUR SITUATION. FOR MORE INFORMATION ON ANY OF THESE ITEMS, PLEASE REFERENCE IRS PUBLICATION 559. ALSO, THIS ARTICLE REFERENCES THE FEDERAL GIFT TAX. YOUR STATE GIFT TAX LAWS MAY BE DIFFERENT.

What You Need To Do Before Buying a Home in Raleigh

December 30, 2022 by Kevin Martini

Are you thinking of buying a home in Raleigh? Before you dive into the process, it’s important to make sure that you are prepared for the journey. Here are three Martini Mortgage Group key things that you can do to get ready to buy a home in Raleigh or anywhere in the U.S. for that matter.

Prepare Your Credit

Before applying for a mortgage loan, it’s important to make sure your credit is in good shape. Mortgage lenders typically require a good credit history for you to qualify for a mortgage. This means having several credit cards and installment loans with payments made on time for the past two years, as well as making all rent payments on time during that period.

A good credit score will ensure that you have access to better mortgage rates and loan terms. You can look at your free credit report from the 3 major bureaus (Equifax, Experian, and TransUnion) once per year as well as order copies of your credit reports from each bureau through annualcreditreport.com. It’s important to review all of your reports closely and address any discrepancies or errors with the respective bureaus.

For more information about credit, check out: Martini Mortgage Podcast | Episode 167 | Freeze it and opt-out

Prepare Your Cashflow

It’s also important to take a close look at your income and expenses before beginning the process of buying a home in Raleigh.

Make sure that you understand how much money is coming in and going out each month, so that you can begin planning for what kind of house payment you can afford on top of any other existing debts or expenses. Knowing how much money is available for down payments and closing costs will help set realistic expectations about what kind of home you may be able to purchase in Raleigh.

It’s also important to make sure your debt-to-income ratio is not too high. Most lenders require that your total monthly debt payments (including the new mortgage payment) should not exceed 43% of your monthly income. If your debt-to-income ratio is higher than 43%, consider paying down some debts before taking out a new loan or try finding ways to increase your income.

Prepare Your Savings

Mortgage lenders typically require you to have a certain amount of savings in reserve in order to qualify for a mortgage. Your savings should be in your account for at least two months in order to qualify, and any large deposits will need to be explained and documented.

The amount of the required savings will vary based on the loan program that you choose. However, a good goal is to save enough for a 3%-5% down payment, plus 1-3 months of mortgage payment reserves.

For example, if your new mortgage payments will be $3,000 per month, you should probably aim to save approx. $9,000 plus the amount of your down payment.

Start budgeting now so that when it comes time to make an offer on your dream house, you’re prepared financially too!

Martini Mortgage Group Bottom Line

Buying a home can be an exciting experience – but first you need to make sure that you are prepared financially by having good credit history and cashflow situation plus enough savings set aside for closing costs and fees associated with the purchase of the home. By following these three Martini Mortgage Group steps – preparing your credit, cashflow and savings -you will be well on your way towards becoming a homeowner in Raleigh!

If you have questions about buying a home or about securing the proper mortgage, let’s connect so you have expert advice on your side.

Kevin Martini

Logan Martini

FHA Home Loans Explained by Raleigh Mortgage Broker Kevin Martini

December 20, 2022 by Kevin Martini

Are you a homebuyer looking to buy your first house in the Raleigh, NC area?

If so, then you may have heard about FHA Home Loans and the potential benefits of them. But what exactly are FHA Home Loans and how do they work? As an experienced mortgage broker in the Raleigh area for more than 15 years, this article has been curated to answer all your questions about this popular loan program.

In this article, I will share a glimpse of what you need to know about FHA loans including who can apply for one and some of their advantages both financially and long-term. I truly believe, armed with knowledge on FHA Home Loans from my helpful explanations, you’ll be able to make educated decisions that could potentially save you thousands of dollars over time and help you create generational wealth with the proper mortgage strategy.

What is a FHA Home Loan?

FHA Home Loans are a type of mortgage loan that is insured by the Federal Housing Administration (FHA). This government-backed insurance is designed to help qualified borrowers get into a home easier and with less money down. FHA loans do not require a high credit score and offers a lower down payment requirement than more traditional mortgage loans, making them an ideal choice for first-time homebuyers and repeat homebuyers too!

FHA loans are also incredibly flexible, as they can be used to purchase a wide variety of properties from single-family homes to townhomes and much more.

Advantages of FHA Home Loan with Kevin Martini

In terms of advantages that come with choosing FHA Home Loans, the most notable one is their low down payment option.

With FHA Home Loans, borrowers only need to put down 3.5% of the total purchase price as a down payment. This amount is significantly lower than what is typically required for more traditional mortgage loans and can be attained with a variety of financial sources such as gifts from family or funds from your local housing agency.

Another advantage of FHA Home Loans is that they are assumable, meaning that if you eventually decide to sell your home, a qualified buyer can assume the balance of the loan without having to go through the entire approval process again. This makes it easier for buyers and sellers alike, especially in today’s highly competitive housing market.

Things to know about the FHA Home Loan

It’s important to note, however, that FHA Home Loans do come with certain restrictions and requirements. The most notable of these is the Mortgage Insurance Premium (MIP). All FHA Home Loans require borrowers to pay an annual MIP in order to keep their loan in good standing. This does add an additional cost on top of the loan itself, but it’s important to remember that the MIP is what allows borrowers with lower credit scores and higher debt-to-income ratios to qualify for a loan in the first place.

Although there is no income limit with FHA Home Loans, the borrower must still demonstrate an ability to repay the loan. This means that having a steady job and verifiable income are important for obtaining approval.

Additionally, the property must be appraised by an FHA-Additionally, there is a loan limit in place which varies depending on the particular county and/or area of the country. In Wake County and Raleigh, NC, the loan limit for a one-family with a FHA Home Loan in 2023 is $502,550.

As you can see, there are a few things to consider when it comes to FHA Home Loans. Myself and the entire Martini Mortgage Group can help you navigate the process, so don’t hesitate to get in touch if you have any questions or would like to start the application process. Together we can find a solution that’s best for you and get you into your dream home as quickly and easily as possible.

The Kevin Martini Bottom Line

Now that you know more about FHA Home Loans and their potential benefits, it’s time to start your mortgage journey! If you’re ready to take the next step, contact me today so we can discuss your options and help you find the perfect home loan for your unique situation. With my trusted advice and expertise in the Raleigh mortgage market, I’m confident that you’ll be able to make an informed decision on which loan program is right for you.