How to use gift funds on a down payment
You're looking to buy a home, but the down payment is high and you need some help. Don't hesitate to ask. Yes, you may be able to get gift funds toward a down payment on your future home from a family member or friend. That means less stress and more support going through the home buying process.
How do you use gift funds? And what's involved in the process?
That gift that keeps giving
When you think of gifting funds, FHA and Conventional loans tend to be loans popular for including this type of help since they are not typically 100% financing, aka no down payment* loan programs.
Gift Funds are often necessary when folks don't have money available for down payment, typically first time buyers." -Movement loan officer Kim Winters.
Pro tip: Cash on hand** can't be used as gift funds.
Mom and dad to the home buying rescue
Unfortunately, any Joe Schmoe off the street can't gift the money. There are rules to gift funds starting with who is qualified to gift.
With an FHA loan, there's a list of people who can gift you with money. They include family members, employers or labor unions, close friends with documented interest, charitable organizations. Governmental agencies or public entities can also help out if they provide a homeownership assistance program to you if you're a first-time homebuyer or a low or moderate income family.
Conventional loans require it to be a family affair. So, a relative, spouse, soon-to-be spouse or domestic partner is allowed to gift you the moolah. Relatives include blood relatives and ones related by marriage, adoption or legal guardianship.
Sorry, your bff cannot qualify as a donor with conventional. Remember too that your gift giver cannot be affiliated to any business party involved in the transaction.
Provide the documents
Once you and the generous gift giver (cough, mom) have sorted the funds, they can transfer the funds to your account. Be prepared soon after to provide a gift letter. A gift letter is another form of documentation verifying the funds gifted to you, so keep it in a safe place until you need to submit it.
FHA documents include a completed gift letter,*** proof of receipt of gift finds and verification from the gifter's account of their ability to gift the funds.
Conventional documents include a gift letter,*** and certain situations require a certification of shared history of residency.
Verify the funds
If the gift funds have been verified in your account, you'll need their bank statement showing the withdrawal and evidence of the deposit into their account.
If the gift funds are not verified in your account, you'll need a certified check, money order, cashier's check, wire transfer or other official check and bank statement showing their account withdrawal.
"The documenting of receipt of gift funds is very specific so buyers shouldn't have their gift funds transferred before speaking with their loan officer," says Winters. "Some programs require proof of donor ability, so setting proper expectations with the donors is paramount," says Winters.
Let's be honest, who doesn't love a little help in the home buying process? Gift funds can help get you into the home of your dreams.
Contact a loan officer in your area to talk about your gift funding options.
*Exclusions vary. ** You cannot document cash to meet the gift requirement. ***Please contact your loan officer for gift letter requirements.
