Do your parents, in-laws or family member want to give you a few thousand dollars as a gift to help with the down payment for the purchase of your home? If so, congratulations — but make sure you can document and explain where you got the money.

FHA loans allow borrowers to receive all of their down payment as a gift from a relative. For conventional loans, borrowers may receive gifts, but at least a 5% percent down payment must come from their own funds.  If you are placing a 20% down payment, the entire amount can be a gift.

Borrowers receiving a gift are required to present a gift letter signed by the donor, stating the relationship with you and that the gift is under no obligation for repayment.  Additionally, you will need a paper trail of the money transfer. Be ready to present statements to show where the money came from when it was deposited into your account.

 What you will need:

  • Copy of the gift check

  • Copy of your deposit receipt – proving that the funds were deposited into your account

  • Copy of donors account statement – to confirm that the donor has the funds to give.  This is usually the biggest snag with a donor and most are insulted that they have to “prove” they have the funds available.  From a lender perspective, you must document that your donor did not “borrower” the money to give to you.  (Yes, it has happened).   So you are documenting that you are not “borrowing” money for the down payment…

Unless the money is being used for the down payment, avoid receiving large cash deposits in your bank account until your mortgage closes. Any large deposits other than your paycheck will have to be explained and documented to comply with federal regulations.

But here is an easy way to avoid the donor verification hassle  – If the gift has been in your account for 90+ days, gift fund documentation will not be required.

 

Resources

Don’t let downpayment gifts delay mortgage loan – MarketWatch

Your Down Payment: Where Will It Come From? | Nolo.com

Four Ways To Get Free Money For a Down Payment On a House

If your down payment is a gift; are there taxes to be paid?

 

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