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January 19, 2023
How to use a Gift for a Down Payment
How to Use Gift Money for Your Down Payment
You can use gift money from a family member for a down payment on your house.
Whether you have been saving for a while to buy a home or are just wondering how
much is enough for a down payment, you may be able to use gift funds from a close
relative for a down payment.
Having enough money saved for a down payment is often one of the biggest hurdles to
reaching your goal of home ownership. However, many loan programs allow you to
receive a gift from a family member to use as your down payment.
A recent study by the National Association of Realtors revealed that 32% of first–time
home buyers and 16% of all buyers received a gift from a relative towards their home
purchase.
Yes, there are loan programs available that offer 100% financing with NO down
payment like USDA and VA home loans. But not everyone qualifies for these programs.
The Federal Housing Administration otherwise known as FHA as well as other
mortgage programs allow you to use gift money for your down payment.
Generally, mortgage lenders require that the donor have a familial or marital relationship with you. Depending on the loan program, the following normally serves as acceptable sources of gifts for borrowers:
• Parent
• Aunt, Uncle or other person related by blood or marriage.
• Spouse
• Fiancé or domestic partners
• Child or dependent Parent
• Legal guardian
• Fiancé or domestic partners
• Child or dependent Parent
• Legal guardian
Most mortgage programs will require that you provide a gift letter from the donor and
verify that they have seasoned funds available to gift you. The money cannot be a loan,
so the gift letter cannot have any terms of repayment in it.
You will need to show the money coming into your account from them or have the funds
deposited directly to escrow.
Also, along with that gift letter from the person or persons who are gifting you the funds they will likely need to provide a bank statement documenting the source of the funds and no getting around that.
Alternatively, they could gift the funds early .. let it season in your accounts for two
statement months … then can avoid the documentation of the gift.
What should the gift letter include?
We would review your circumstances and outline a draft for you but the gift letter should include:
• The name, address and telephone number of the donor
• The donor’s relationship to you
• The dollar amount of the gift
• The date of transfer of the funds for the gift
• State that the donor does not expect repayment from you.
• Street address of the property being purchased.
• Street address of the property being purchased.
Each loan program is a little bit different. For some loan programs, you can use all gift
funds for your down payment whereas other loan programs require that some of the
down payment be from your own funds. We can outline the requirements of the
program you are considering.
One of the most important things to remember is that gift funds are just that, a “gift”,
which means that they are not paid back. If it is actually a loan the terms for repayment
have to be included in your qualifying and could result in you not getting the loan!
A gift from your parents or family member might just be the ticket to getting into the
house of your dreams.
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