12 questions you might have about buying a home with gift funds

Whether you're buying a condo for yourself or a starter home for your growing family, you may find that you need a little help coming up with the down payment or closing costs — especially with the way home prices have climbed in the past few years.  

Using “gift money” for a down payment is more common than you think, especially for first-time home buyers. However, there are some things you need to know.

If you're fortunate enough to have a family member, friend or employer offering to help, this list of 12 frequently asked questions is for you! 

 

1 – What are gift funds used for?

Gift funds are accepted as part or all of your down payment and/or closing costs. They should be deposited into your bank account to show that you have reserves to pay for the first few months of your mortgage payments. Check with your loan officer to see if there are any local ordinances or ramifications to using gift funds to purchase your home.

 

2 – Do all loans allow prospective homeowners to use gift funds?

Individual mortgage companies may have particular rules about which loans they'll make available to borrowers using gift funds. Here are the four most common:

• FHA loans: Use gift funds for some or all of your down payment and/or closing costs when using an FHA loan.
• VA loans: Down payments aren't always needed with a VA loan, but gift funds may be used if one is required or for closing costs if any.
• USDA loans: Like VA loans, down payments may not be needed, but gift funds may be used if there is one. Same with closing costs.
• Conventional loans & Jumbo loans: In many cases, gift funds can cover the down payment and/or closing costs in their entirety. 

 

3 – Can I use gift funds for properties that aren't my primary residence?

Gifts are typically not eligible on an investment property. Talk to your loan officer about your specific situation.

 

4 – Who can I accept gift funds from?

If the person offering the gift is approved, they are called “acceptable donors.” Family members like parents, grandparents, uncles, aunts and siblings can all be acceptable donors. So can spouses, fiancés, inlaws and prospective inlaws. Also OK are close friends, employers, specific charitable organizations and other public entities. 

 

5 – Can the donor borrow the money they're gifting?

No. Gifts must be from the donor's personal funds. In nearly every case, gift-givers are asked to provide documentation of where the money comes from and to write a “gift letter” — more on that later.

 

6 – Who can I NOT accept gift funds from?

Funds coming from any person with a financial stake in your home purchase — like the seller, homebuilder, developer, loan officer or real estate agent — will not be considered gifts: instead, they will be seen as discounts, concessions or considerations that reduce the sales price.

 

7 – What exactly is a gift letter?

As your lender reviews your finances, they'll want to know that gift funds are, in fact, a gift and that there is no expectation to pay that money back. That's where the gift letter comes in: it very clearly documents where the money came from and confirms that it's not a loan you'll need to pay back on top of your monthly mortgage payment.

 

 

8 – What if gift funds have been in my account for a few months?

Money deposited into your checking or savings account more than 60 days ago may be considered “seasoned” and might not require a gift letter. The decision really depends on the risk adversity of your lender. Also, if the amount of the gift money is relatively small compared to your income and other assets, you may not need a gift letter at all.

 

9 – How do you write a gift letter?

Your lender may have a template for the gift giver to follow. If not, here are the “must haves” most gift letters will need to include:

• Contact info. The donor's legal name, home address and primary phone number. 
• The relationship of the donor to the homebuyer.
• The address of the property the homebuyer is hoping to purchase.
• The precise amount of the money being gifted.
• The source of the funds— i.e., the donor's bank account info.
• The date of the gift should be the same date written on the deposited check.
• A statement that implies that the funds are not a loan and that there's no expectation for this money to be paid back.
• The donor's signature.

 

10 – Is there anything else gift donors should do?

The donor should keep a well-documented paper trail of where the money is coming from. For example, if they're withdrawing funds from a personal account, the lender may want to see a copy of the gift fund check and two bank statements — one just before and one right after the gift transfer. If the money is from a stock sale, they should document both the sale and the transfer of the funds from their brokerage account. 

 

11 – Can I receive and use gifts from multiple sources?

Yes. As long as the gift giver abides by the rules of what it means to be an acceptable donor and they provide the proper documentation, you can accept gift money from several sources.

 

12 – Should I deposit the gift funds in person?

Some lenders prefer you to deposit a physical check at the bank in person rather than depositing through an ATM or online app. Others may prefer the speed of a digital transfer. Just remember to keep a receipt for your records and ensure it matches the gift check amount to the penny. You'll also need a copy of the cleared check and an updated bank statement that reflects the deposit clearing into your account. 

 

Is there anything else I should know?

Ask your tax preparer or financial advisor if there will be tax implications for you or the gift giver. Then contact a Movement Mortgage loan officer near you for gifting requirements based on the type of loan you're interested in applying for.

Good luck!