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Using wedding-present money for a down payment

Some couples today are breaking away from the traditional china, silver and linen gift registries when it comes to asking for wedding gifts. They're asking for money.

A wedding-day cash infusion can make it easier to put a down payment on a home. With home prices appreciating rapidly in much of the country, lots of couples need all the help they can get.

There are formal and informal rules governing gifts of money to help newlyweds buy a house. First, the informal rules: Is it OK to ask one's wedding guests for money?

"It's not rude to request money as a wedding gift," says Peggy Post, author of "Emily Post's Wedding Etiquette." "However, it's extremely important to ask politely."

Peggy Post is Emily's great-granddaughter-in-law, the wedding etiquette expert for WeddingChannel.com and the main spokeswoman for the Emily Post Institute. She says one of the most common challenges that couples face is how to request money as a wedding gift. Doing so is acceptable, if done politely.

If you seek down-payment money, get the word out through family and friends, Post recommends. Just don't include that info in the same envelope as a wedding invitation.

"If you are asked point-blank what you would like for a gift, you might say, 'Whatever you choose will be wonderful, I'm sure, but money for a house down payment is on the top of our wish list,'" Post says.

It's OK to say what it's for
Go ahead and tell people what you want the money for. Who knows? If you let people know that you plan to spend the money on a down payment, rather than on a honeymoon in Tuscany, they might be more willing to open their pocketbooks.

Wedding guests who insist on giving you yet another toaster or wicker picnic basket or a set of rosewood corn holders should be thanked anyway, even though they aren't helping you buy a house.

"You should always accept any gift graciously, and remember that the choice of what to give really belongs to the gift giver," Post says.

With the etiquette question out of the way, that brings up how to get the money from your guests' pockets and into the hands of the folks who eventually sell you their house. It's not simple, because mortgage loan programs have differing rules on the use of gift money in making a down payment.

The rules on using gift money
Generally, you are expected to be able to make a down payment of at least 5 percent from your savings, excluding gifts. But what if you are too impatient to wait that long? Some mortgage programs allow you to use gift money if you can't scrape together enough for a 5 percent down payment.

Loans insured by the Federal Housing Administration allow you to use money from gifts to make a down payment of as little as 3 percent. Fannie Mae and Freddie Mac, the two biggest purchasers of home loans, offer similar programs through lenders. Fannie Mae's "Flexible 97 mortgage," for instance, lets you pay 3 percent of your home's purchase price as your down payment, which can come from gifts. Freddie Mac's "Affordable Gold" and "Alt 97" programs also allow a percentage of the down payment to come from gifts donated by relatives.

If there is a problem with these loan programs, it is that they limit who you can accept money from. The FHA, Fannie and Freddie allow family members to give you money.

What about friends? Can you use gift money from, say, the woman who has been your mother's best friend since kindergarten? Technically, no. The money has to come from family (or from a nonprofit or government agency, but they don't give wedding gifts).

It wasn't always this way. In 1996, the FHA encouraged lenders to offer "bridal registry accounts," where couples could stash gifts from friends and family. "Then, when the newlyweds purchase their new home, the money will be available and documented through a lender-supervised account," the FHA said.

A few lenders responded enthusiastically, establishing account programs specifically for newlyweds complete with gift cards that could be returned to the bank with a check enclosed.

One such lender is SunTrust Mortgage, a subsidiary of SunTrust Banks Inc. Through SunTrust Mortgage, you can open a bridal registry savings or checking account at SunTrust Bank. When a wedding guest makes a deposit, the bank sends a card to the bride and groom to let them know.

"When they're ready to go ahead and make that first home purchase, they access those funds and we get a mortgage for them -- and we hope they remain a SunTrust banking customer," says Cheryl Nolda, senior vice president of marketing for SunTrust Mortgage.

Despite their success at SunTrust, bridal registry accounts never really caught on. You can always open a regular old savings or money market account to hold your down payment fund. You might need to document where the money came from. That's easy enough when the money comes from your paycheck. If some of the money comes from gifts, be prepared to document whom it came from. Encourage gift-givers to give checks from their personal accounts.

And don't forget to write those thank-you notes.

Editorial assistant Leslie Hunt contributed to this story.

Bankrate.com's corrections policy
-- Posted: May 3, 2006
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