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Down Payment Registry?

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Posted On: 01/21/2015

QUESTION:

We’re getting married and rather than registering for gifts we would prefer cash to help save for a down payment. Some of our relatives think this is nontraditional and maybe unwise. What do you think?

ANSWER:

Stick to your guns.

According to TheKnot.com, the average wedding now costs upward of $30,000. That’s a huge amount for most families given that the average household income in 2013 was $51,939. That’s also a huge amount for another reason: Household income in 2013 was 8.7 percent lower than in 1999.

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Is some of that wedding money better spent on a down payment for a house? The answer depends on family preferences, finances and dynamics, and whatever is best in your particular situation. It also depends on family goals: Many families see weddings as a way to help the new couple get a head start in life. The important point is not to let social pressures drive anyone into debt or financial discomfort, including the bride, groom, parents or the guests.

Mortgage lenders like financial gifts. With FHA loans, as one example, the borrower is responsible for coming up with the down payment. There can be a “seller contribution” – say a credit toward closing from the owner – but the down payment itself must come from the purchasers. However, one big exception to the down payment rule is that gifts are allowed from family, friends, an employer or labor union, a charitable organization and even a government agency.

“In order for funds to be considered a gift,” says HUD, “there must be no expected or implied repayment of the funds to the donor by the borrower.”

The value of such gift funds is enormously important. First, the larger the down payment the less there is to borrow, so monthly ownership costs are lower. Second, if the down payment is at least 20 percent of the purchase price then the borrowers won’t need mortgage insurance, a big cost. In effect, not having to pay mortgage insurance is a sizable dividend.

What about registering for gifts? The reality is that people are getting married later. Back in 1960 the typical bride was age 20.3 at the time of her wedding, but now the bride is likely to be age 26.6, according to the Census Bureau. Because people are marrying later they tend to own more stuff at the time of their nuptials, so they have less need for mixers and bathroom scales. Instead, in many cases, checks and cash are very welcome.

The socially acceptable way to get financial gifts is to let the word spread that you would prefer cash and to explain why: Money from a wedding that’s intended for a responsible purpose – perhaps toward the down payment for a home, the repayment of student debt or just for savings – is likely to be an acceptable idea, especially in today’s fragile economy.

Peter G. Miller is the author of The Common-Sense Mortgage and a veteran real estate columnist. Have a question? Please write to peter@ctwfeatures.com.

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