How To Use Gift Money For Your Down Payment

Dated: 09/24/2019

Views: 61

Saving for a down payment can be a particularly challenging part of the homebuying process, but luckily, you’ll get by with a little help from your friends, or family, or labor union.

According to a study done by the National Associate of Realtors, gifts from relatives or friends are the third most popular source of down payment, and for good reason. They’re relatively easy to give and receive, may unlock benefits like lower interest rates, and shave years off the homebuyer’s timeline. Here’s how you may be able to use gift money for your down payment.

Check eligibility

Unfortunately, you can’t accept a gift from just anybody and not all loan programs allow for your down payment to come from gift funds. For example, the HUD handbook makes clear that Federal Housing Administration (FHA) loans allow for gifts only from relatives, employers or labor unions, close friends with a clearly defined and documented interest in the borrower, charitable organizations or certain governmental agencies. Fannie Mae requirements differ slightly and limit the use of gift funds toward your down payment to those given by your fiancé/fiancée, domestic partner, relative (defined as your spouse, child, or other dependent, or any other individual who is related to you by blood, marriage, adoption, or legal guardianship). Also keep in mind that under the terms of the Fannie Mae loan programs, you can’t use gifts from anyone with a financial interest in the sale of the property, such as the seller, agent, builder or associated entity for your down payment.

Determine gift amount eligibility

While there may be no limitations on the amount a donor can contribute, a portion of the down payment may need to come out of your own pocket for certain loan programs. That portion can depend on the loan type, property, credit score, down payment size and more. These rules and regulations are subject to change, so you may want to consult a mortgage professional for the most up-to-date information tailored to your unique situation.

Have your gift giver Write a gift letter

Once you’ve cleared your gift giver as an eligible down payment source and you and your gift giver have decided on an amount, have your gift giver begin drafting a gift letter. This document must include:

  • Your name

  • Gift giver’s name, address and contact information

  • Gift amount

  • A statement that the money is a gift, and that you are not expected to reimburse the gift giver

  • A statement that the gift giver has no interest in the sale of the property

  • The property address of the home you are buying

  •  The gift giver’s signature

Establish a paper trail

Finally, thoroughly document the gift money transfer. This may include bank statements, canceled checks or printed paperwork detailing an electronic transfer from the gift giver to you. Confirm that your loan program doesn’t require additional proof of receipt.

This may be a good time to draft up a heartfelt thank you note, too!

Want to Advertise on this Site?

Latest Blog Posts

What Buyers Really Want In A Kitchen

Let’s talk about two of everyone's favorite subjects: you and your kitchen. In a recent Houzz survey, homeowners were asked to answer a series of questions about their kitchen

Read More

Let Us Know How We Can Help Make It Yours

In the market for a new home? Know someone who is? Call to see this one!

Read More

Make Turkey Day Easy

Our Best Make-Ahead Tips for Your Easiest ThanksgivingYet The Turkey: Prep It for Roasting. ...  Mashed Potatoes: Freeze Them or Embrace the Make-Ahead Casserole. ... 

Read More

WInter Ideals

Build a snowman. Because it's fun. ...  Try a new winter sport. ...  Buy yourself new winter accessories. ...  Sip a sweet latte. ...  Go for a winter drive. ... 

Read More