Using Gift Funds for your Down Payment

Not everyone has thousands of dollars lying around for a down payment when they are in the market to purchase a home, so receiving a gift can be a great option!  Here’s what you need to know, if you’re lucky enough to receive a down payment gift.

There is a common misconception that you can use whatever monetary gifts your friends and family give you toward your down payment, but it isn’t quite that simple—the source of the funds actually matters more than the amount in your bank account.  If your great aunt’s neighbor’s friend hands you $1,000 in cash, don’t deposit it!  Not only will it be a problem because it is untraceable, but you cannot accept a gift from just anyone.

Who can give a down payment gift?

So, who can give you a down payment gift?  Any immediate family member—parents, grandparents, siblings, or children—can gift funds.  Your significant other can also give you a gift, but only if you are engaged to be married.  Unfortunately, extended family such as aunts, uncles, or cousins would not be permitted to give a down payment gift.

What is a “gift letter”?

Once an eligible family member has committed to giving you a monetary gift, they’ll need to complete a gift letter.  Each lender’s gift letter looks slightly different, but includes the same basic information; the subject property address, the amount of money being gifted, the relationship of the gifter to the giftee, and a statement that the gift is indeed a gift, not a loan in disguise, and will not be repaid.  Both the gifter and giftee must sign and date the letter.

Want an example? Click here to see an Example Home Loan Gift Letter

Don’t do anything without a paper trail

Let’s say, for example, that your grandparents are going to give you a gift of $25,000.  They plan to pull $15,000 from their retirement account and $10,000 from their savings.  In addition to the gift letter, they may need to provide the following documentation:

  • Retirement account statement showing $15,000 available to give
  • Bank statement showing $10,000 available balance in savings account
  • Bank statement showing transfer of $15,000 going in, and $25,000 total available funds

Although the actual requirements may vary depending on the loan program you have chosen, it is best to let the gifter know ahead of time that these documents may be needed.  Next, you will need to provide:

  • Copy of the check from your grandparents to you
  • Bank statement showing the $25,000 cleared your account

Don’t forget to thank your gifter!

Related: Documents You Need to Get a Mortgage

Have a specific scenario you’d like to run past us?  Give us a call to speak with one of our licensed loan officers. We would love to recommend the best loan program for you and your situation.

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