Loans
|Down Payment Gifts: What You Need to Know
Did you know that family members can help you with down payment funds? A down payment gift occurs when a potential home buyer receives funds from a relative or acceptable donor to be used toward the down payment on their home purchase. This option is especially popular with first-time homebuyers, but keep in mind there are some rules to follow for a smooth underwriting process.
Overview of Rules
The two main guidelines for receiving a down payment gift are:
- Approval requires formal documentation with an acceptable “Gift Letter”
- You must keep a thorough paper trail from the gift recipient
Submit a Down Payment Gift Letter
A gift donor is required to write an acceptable gift letter to your lender. Your lender will have a template for you to follow. The letter includes:
- The exact amount of the gift that will be given
- The donor’s name, mailing address and telephone number
- The address of the property to be purchased
- Your relationship to the donor
- Confirmation that the funds are a gift and not meant to be paid back
- Donor’s signature
Transfer Funds
Follow these steps ensure the transfer is made appropriately:
- Keep a paper trail on where or how the funds were acquired and how they were transferred
- Transfer the gift funds with a check that is easily trackable by your lender
Document Deposit
Once you have your gift check, follow these steps to properly deposit the money:
- Walk-in and deposit the check in-person at your bank instead of depositing online
- The money should be added to the same account that all funds will be pulled from at closing
- FHA Loans require a copy of your donor’s bank statement to see the funds withdrawn
- At the bank, deposit the gift check with no other monies and make sure you get a receipt with the exact dollar amount stated in the Gift Letter
- If you’re receiving multiple down payment gifts from multiple sources, this process should be followed for each individual gift donor
By following the above guidelines, receiving a down payment gift to secure your new home will be stress-free. If you have any questions about down payment gifts or mortgage approvals, contact us below or at 708-531-8388.
