October 4, 2018

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:

  1. Approval requires formal documentation with an acceptable “Gift Letter”
  2. 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  • FHA Loans require a copy of your donor’s bank statement to see the funds withdrawn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.

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