Get the Gift of Downpayment this Holiday Season

Is a new home on your wish list this holiday season? If you’re planning on purchasing a house soon, you might be worried about coming up with enough money for your downpayment. You might be surprised to learn that 25% of first-time homebuyers used cash they received as a gift toward their downpayment, according to the National Association of Realtors. This holiday season consider asking for the gift of a downpayment.

But don’t go asking the big man himself for the downpayment gift funds-it’s likely that your lender won’t accept them. Before anyone forks over any cash, you’ll want to be aware of the rules and regulations for using gift money as a downpayment. 

First of all, who can gift you funds?

For VA and USDA loans, which have zero downpayment options, the guidelines are more lenient. Generally speaking, the money can come from anyone that does not have an interest in the sale of the property, i.e. the seller, builder, real estate agent, etc.

FHA and Conventional loans have stricter guidelines.

Conventional Loans:

• Family members: This includes parents, grandparents, siblings, children, spouses, and domestic partners. 
• Non-relatives: This can include godparents, close friends, or other individuals with a strong familial relationship to you.

FHA Loans:

• Family members: Similar to conventional loans, this includes parents, grandparents, siblings, children, spouses, and domestic partners.  
• Close friends: This requires a documented relationship and reason for the gift.  
• Employer or labor union: If you receive a gift from your employer or labor union, it must be documented and explained.
• Charitable organizations: Gifts from charitable organizations may be accepted, but specific guidelines may apply.  
• Government agencies or public entities: If you qualify for a government-sponsored homebuyer assistance program, you may be able to use gift funds from these sources.

What are the guidelines and what documentation is needed?

FHA loans allow gift funds for primary residences only, while Conventional guidelines allow for primary residence and second homes- but no investment properties.

If you plan to use gift funds as your source of downpayment, you need to make sure you go about the process in the correct manner.

Your lender will need to verify that the money is a gift, instead of a personal loan that needs to be paid back.

No matter the loan type, the donor needs to write a gift letter stating:

• Their name, address, telephone number
• Their relationship to the borrower
• The dollar amount of the gift
• A statement that no repayment is required

You will also need to properly document the gift funds.

Your lender needs to see a paper trail of the money and will require you to provide evidence of the transfer of funds from the donor’s account into your account. The documentation needed will differentiate depending on your loan program and your lender. Cash on hand is never an acceptable source of donor funds.

Because guidelines vary between different loan programs and are dependent on your personal situation, it’s always best to speak with a loan officer to ensure that your gift money will be accepted as a source of downpayment.

The information contained herein (including but not limited to any description of lending programs and products, eligibility criteria, interest rates, fees and all other loan terms) is subject to change without notice. This is not a commitment to lend