How to Use Gift Money as a Form of Down Payment

Using gift money as a means of buying a home is extremely common these days.  Regardless of the amount of the gift, there are standard lender rules regarding gift funds that borrowers should be aware of.  Here is a list of guidelines that all home-buyers should consider when using gift funds to purchase a home:

1)    Gift funds must come from a parent or sibling; friends and distant relatives are disallowed to grant gifts for down payments

2)    Eligible gift funds can be used immediately and do not need to remain in a bank account for 2-3 months

3)    In many situations with conventional loans, the lender will require that at least 5% of the down payment needs to come from the borrower’s own funds and the rest can be used as a gift.  For example, if a home buyer is putting 20% down on a home, 5% needs to come from the borrower and 15% can come from the gift donor.  However, with FHA loans, 100% of the down payment may come from a gift

4)    If the gift funds are coming domestically or from overseas, the wire or check needs to be traced back to the source of the donor.  For example, the lender will ask for a copy of the wire confirmation or check, the domestic or foreign bank statement showing that the funds came from the donor’s account and proof that the funds landed in the borrower’s bank account

These are the main guidelines when considering using gift funds to use as a down payment, it is highly recommended that a future home-buyer consult with a mortgage broker or bank to make sure they fall within the lender guidelines regarding gift funds in advance of looking for a home.