Borrow Money to Show Stronger Financing

I don't know who's telling you this, but it's just flat-out wrong. Most co-ops will not consider "gifts" in evaluating a buyer's financial picture. And writing a letter only draws attention to their financial shortcomings.

And if you want to go the "gift" route, you'd better have the money sitting in your account for at least a full year. Nothing looks worse to a board member, looking over months of bank statements, and seeing an arbitrary deposit for $20K, $30K, $50K, or whatever with no explanation.

I've heard of a gift letter being needed where a family helps with a downpayment. I'm not sure I've ever heard it cited as a positive to need family assistance with a downpayment, though.

And if you have to lie to qualify for an apartment you're better off not buying it.

I agree 100% with both of your statements, thank you. Nice to hear that I'm not completely crazy to think this sounds very odd. The issue is not needing the $ for the down payment, it's having more cash after purchase due to being right on the cusp for debt/income ratio and help "overcome" portion of income coming from a bonus.

"it's having more cash after purchase due to being right on the cusp for debt/income ratio and help "overcome" portion of income coming from a bonus."

If you can't do it on your own, you can't afford the apartment.

The buyer needs to find something more affordable.

My guess is that the gift letter is an FHA mortgage thing (so you don't have to save 3% of the purchase price, just show that that that amount of money exists somewhere in the world, at least on a ledger) ... not a coop thing.

NYC10007, i've got some diapers if you need them.

That was uncalled for.

i've got some for your friend living on your couch too.. size 7

w67th, are you serious? Very productive...

It is done and I have heard of it. It does not necessarily defined as a gift (couls be an undeclare family loan) but if you believe that all the co-ops applications are real with real numbers than you have not been around or as 67 (or is it 69) wrote need diapers (size 1). I have seen application submitted to boards that were so financialy strong that it left you wonder why a person bought such an inexpensive property. In any case whoever is doing it plan ahead and has the money in his/her account for many months prior to the actual application date. (like 12 months earlier).

Matt - Do you really look at statements back a year? I've only ever been asked to provided 3 months of bank/brokerage statements and a few years of tax/income documents.

Matt, I have to totally disagree with you on this one. It is VERY common where parents are giving/lending all or part of the down payment to show where the money is coming from. Without such a thing, if an applicant's financials showed that they were taking out a loan for $X and putting a down payment of $Y, but didn't have anywhere near $Y in their bank/other statements, the Board would say "How can you do this?". So, in building which allow parents to help children buy, it is fairly common.

But it's not generally "to represent stronger financial capacity". And This "gift" can then be returned at any point post-closing.". in fact, if a Board thought THIS was the reason for it, they might turn the applicant down. So if you're going to do a "gift letter", you better be able to show that it actually has happened or definitively will happen, and if the latter, you should also produce documentation from the GIVER of the gift showing the funds exist and where they are coming from.

The concept is not to scam a Coop Board into believing that you have more assets than you actually have, and do so with a "phantom" gift letter".

"Matt - Do you really look at statements back a year? I've only ever been asked to provided 3 months of bank/brokerage statements and a few years of tax/income documents."

We ask for 6 months. Many co-ops ask for a full year. We also look out for red flags; for instance, if an applicant's income is only $75K, he's in his early 30s, yet has half a million dollars in the bank.

Two separate things here: gift letters, as have been pointed out above, generally come from parents who are helping with the downpayment, to explain WHY an applicant with only $75K in income has the down payment to buy the apartment. The gift letter explicitly states that the money is not a loan and the giver realizes it's not going to be returned.

Padding accounts, on the other hand, is when a buyer's parents give them money months in advance of a purchase so that by the time the co-op board checks the financials the money has aged in and the accounts look plump and the buyer meets the standards for post-closing assets. I realize that you are all shocked, SHOCKED by this behavior, but it does indeed happen all the time.

Risk the parents run in both cases is of having to pay gift tax, because I think you can transfer, what is it, $13k a year now per parent per kid, so you can get $52K across the table without tax consequences, but sometimes plumping accounts requires more than that ... or so I've heard.

ali r.
DG Neary Realty

Ali, have you also heard of 'Crummey Letters'?

Apparently, in the rest of the world where they don't have to worry about co-op boards (but they have to live with Red Lobster as a sea food restaurant and Outback as the meat option) the thing is for parents or others to put money in the an account to assist in securing financing. I saw this on an episode of "The Wire" and apparently its illegal, a federal offense. I guess the feds don't care about shenanigans for the benefit of co-op boards...

"w67th, are you serious? Very productive..."

LOL. This reminds me of the time Matt was whining up a storm, and I told him to go home and put on a maxi pad, and then come back and post...

Yo! Dwayne pipe. Been awhile.

'the absolute minimum gpa for getting into harvard is 3.9. Unless your mama can give us $500k. Then it's 3.8. For $20mm, anyone gets in and we'll name a bench in your honor!'

'just put down $200k/yr dog walker. No down payment? Got someone that can float you $50?, congrats! You the proud owner of the 4bdrm penthouse at the rushmore!'

'don't have a 12 inch, tell her to turn around and use THIS!'

seriously? Anyone else need diapers?