Giving & Receiving a Down Payment Gift

Mortgage lenders allow gift funds to contribute to the down payment on numerous loan programs including FHA loans, VA loans, USDA loans and conventional loans.

If you receive a check towards your down payment this holiday season, there are specific guidelines you must follow to not jeopardize your home purchase. Share this post with the donor so they know their obligations, too.

If you are the recipient:
  1. The money must be considered a gift, not a loan. An expectation of repayment will affect the amount of your mortgage approval.
  2. Be prepared to provide a bank statement that shows the full amount being deposited to your account. The amount must match exactly the amount stated in the gift letter.
  3. If you are a few months out from buying your home, and the deposit will not show in the last two statements (which must be presented to qualify for a home loan) then the gift probably won’t need to be addressed.
  4. The current limit to receive a monetary gift tax free is $15,000. You will be taxed for monetary gifts above $15,001. However, multiple donors can gift you up to $15,000 each, providing they each provide you with separate documentation. Read the IRS guidelines on gift taxes >

If you are the giver:
  1. Provide the recipient with a gift letter stating that the money is indeed a gift, which is not repayable. The gift letter should include the following information :The amount of the gift
    • The subject property addressThe relationship of the donor to the giftee
    • A note that the gift is actually a gift and not a loan and will not be repaid
    • Have both parties sign and date the letter
  2. Be prepared to provide bank statements to show the full amount being deducted from your account.
  3. If the recipient has already found a house to purchase, you should wire the full amount directly to the recipient’s attorney.
  4. A single donor can give a monetary gift tax free to the recipient up to $15,000. If you want to give more, you and your spouse, or another relative, can each give the home buyer an amount up to $15,000. However, each donor must provide the recipient with a gift letter and be prepared to provide bank statements to document their specific gift amount. Read the IRS guidelines on gift taxes >

How a monetary gift can affect your eligibility for a specific loan type

Some loan types have strict guidelines regarding how much money of your own must be applied to the down payment, in addition to any monies provided as a gift. Here are some rules about gift money as it relates to three of the most common loan types.  

FHA loan - If your FICO score is 620 or higher, the full amount of the minimum 3.5% down payment for your primary residence can be gift money. The gifter will need to provide a bank statement. Read the FHA loan rules on down payments and gift funds >

VA loan - Gifted funds may be used to pay the VA Funding Fee and/or other loan costs. The gifter is not required to furnish a bank statement. A canceled check is enough proof for documentation. Read about VA loan fees >

Conventional loan - For a primary residence and second homes, the borrower is not required to contribute to the down payment from their own funds. All funds can come from a gift. Read the Fannie Mae guidelines for personal gifts >

Before qualifying for a home loan, speak to a Certainty Home Loans mortgage professional for advice on how to use a monetary gift for a home loan.
- Dec 03, 2018