December 17 2018

FHA Announces New Loan Limits for 2019

The Federal Housing Administration (FHA) has announced their new loan limits—and it looks like it’s another increase...

Read More

November 15 2018

The Impact of Rising Rates

If you’ve ever had a credit card or purchased a car, you should be familiar with interest rates. An interest rate is the...

Read More

November 12 2018

What to Keep From Your Closing

After several stressful months of buying or selling your home, it may be tempting to put the transaction in the past and dispose...

Read More

November 05 2018

What is an Appraised Value?

Everyone wants to sell their house for more than they bought it for, but real estate is trickier than that. Markets change, and...

Read More

November 02 2018

Pros and Cons of Buying a Condo

Whether you are a first-time homebuyer or searching for home number ten, buying a condo instead of a house may be the perfect...

Read More

October 29 2018

What a Home Inspection Should Cover

Before making what may be the largest investment of your life, you’ll want to get a home inspection. Home inspectors are...

Read More

October 26 2018

3 Reasons to Invest in Real Estate

Increasingly, Americans are choosing to invest in real estate instead of stocks, bonds, or mutual funds. From 2000 to 2016, real...

Read More

October 22 2018

What Does a Realtor Do?

Ever wonder about the difference between a real estate agent and a realtor? They’re the same, right? Not so. Working with a...

Read More

October 19 2018

Your Final Walk-Through Checklist

By the time you get to the final walk-through step of buying a home, you may be a dangerous combination of excited and exhausted....

Read More

12345Last

Homebuying June 26 2018

Getting a Down Payment as a Gift

Congratulations! You’re about to buy a home and you have someone in your life generous enough to help you achieve that dream. Or maybe you’re considering tugging on the old heartstrings to make that a reality. If you already have proof of income and a strong credit score, you can use gift money for a down payment on a home, but there are a few rules:

Send a Signed Statement to Your Mortgage Lender

Any gift deposit more than 25 to 50 percent of your total monthly income has to be documented in a gift letter if it’s going to be put towards a down payment. You and the donor must both clarify that the funds are a gift. This includes the following

  • A signed explanation that you’re not expected to pay them back.
  • The amount of money to the exact dollar.
  • The type of account (savings, checking, etc.).
  • The expected date of money transfer.
  • Your relation to the donor.

Follow this process for each gift donation—yes, each one gets its own letter and bank account!

Leave a Paper Trail to Help the Lender Track Funds

Huge sums of borrowed cash, such as a credit card cash advance, would imply you’re not able to commit to a mortgage without racking up debt. Here’s how to validate your down payment money as a gift:

  • Deposit the gift into its own account and save a receipt. The last thing you want to do is pull from multiple accounts when you’re trying to prove the source.
  • Provide two months of bank statements. Some loans will also require your donor’s bank statements. Prepare full documentation.
  • Send copies for verification. Photocopy the check or present paperwork verifying electronic transfer.
  • Keep a record of when the gift leaves your account. Not always necessary, but good to have on hand.

 

Schedule a Call

 

Know Your Loan Restrictions on a Gift Amount

Research how much gift money your specific loan allows to be used for a down payment. We’ve pooled a few common loan types and minimum contributions:

Conventional

  • For a down payment of 20 percent or more, the entire down payment can be a gift. Any less, and you must pay part with your own money.
  • Gift money can only be used on primary residences and second homes (no investment properties).

FHA and VA

  • The entire down payment can be gift money.
  • If you have a credit score between 580 and 619, you must pay for at least 3.5 percent of the down payment yourself.
  • Gift money can only be used on primary residences.

 

Know Your Loan Restrictions on a Gift Donor

Depending on the insurance company, the donor’s relationship to you can include the following:

  • A family member, including fiancé
  • Close documented friend (such as a godparent)
  • Employer
  • Charity
  • Government agency providing homeownership assistance

Lenders can consider exceptions, but the gift donor can’t have an interest in the property sale. For example:

  • Seller
  • Real estate agent
  • Builder

Any money given to you by these parties would be considered a reduction in the sale price and would have its own effect on mortgage loan rules.  

  Now that you’re ready to draw up your gift letter, here are a few important reminders:

Provide Enough Time for Transfer

Your gift letter and the deposit are required to be processed and documented before closing your mortgage.

Warn Donors About Gift Tax

Anyone can gift up to $14,000 per year tax-free. So in an ideal situation, your own parents could gift you and your spouse a joint total of $56,000 with four separate checks (one from each parent). Greater sums have to be accounted for come tax season.  

Speak to a Loan Officer

  References:  

Mortgage Calculators

Crunch the Numbers With Our Helpful Mortgage Calculators

Payment Calculator

payment calculator

Payment
Calculator

Affordability Calculator

affordability calculator

Affordability
Calculator

Refinance Calculator

refinance calculator

Refinance
Calculator

The Modern Digital Mortgage with a Personal Touch

Paperless. Effortless. Awesomeness TM

Simplify the home financing process with our Digital Mortgage. We'll be here to help navigate you through the entire process.

Get Pre-qualifiedWhat is a Digital Mortgage?