How to use gift money for your mortgage down payment

All this remote working stuff might have you thinking what many others are thinking, “Why am I paying high rent to live within an easy commute to the office when I can live anywhere?” And if you can live anywhere, you can probably also afford a monthly mortgage payment. It might even be less than your rent. So what's holding you back?

If you're like most first-time homebuyers, what's holding you back is the down payment. Depending on the type of home you're looking for and the part of the country you're in, even a downpayment that's just 5% of a home's purchase price could be a deal-breaker.

Get help putting money down

If coming up with a down payment is a hurdle that's too high, don't give up. You may be able to use gift funds toward a down payment on your future home from a loved one. That'll mean less stress for you and your family as you move through the home buying process.

There are restrictions as to who you can receive a down payment “gift” from, however. That's because unless the person you're getting a money gift from is incredibly close, there might be strings attached. That's why it's called a gift and not a loan: there can't be any arrangements that this money will have to be paid back. If it did have to be repaid, it would impact your debt-to-income ratio and could put a mortgage approval out of reach.

Who can give you a gift for a down payment?? 

Most lenders will accept gift money so long as you detail your relationship with the giver, usually in a letter, verify that the money is indeed a gift and provide bank statements showing a transfer of funds.

 As you're thinking of home financing, keep in mind that Conventional loans and FHA loans tend to be good mortgage vehicles for utilizing gift funds since they are not typically loan programs that offer 100% financing. Every loan product has different parameters, but some are more lenient than others.

For conventional loans, you usually need to keep it in the family. You can ask for help from:

• • Parents
  • Grandparents
  • Brothers or sisters
  • Spouses
  • Domestic partners
  • Fiancés
  • Other individuals that need to be related by blood, marriage, adoption or legal guardianship 

The same goes for FHA loans, but they let you reach out a little further and allow you to receive down payment gift funds from:

• • Close friends with a clearly defined and documented interest in the borrower
  • Borrower's employers and labor unions
  • Charitable organizations

You can also get a hand from governmental agencies or public entities, both of which 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. 

Document it

Once you and the generous gift-giver have sorted the arrangement, they can transfer the amount to your bank account. Once the gift funds have been verified in your account, you'll need a copy of the gift-giver's bank statement showing the withdrawal and evidence of the deposit into your account. Print out a copy of both statements documenting the transfer.

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 showing the account withdrawal.

You (and they) will need to go a step further. The person gifting the funds must provide a “gift letter.” This is another form of documentation verifying that the funds were given to you and that you are not expected to repay the money. Additionally, some programs require proof of donor ability, so the gift giver may need to prove that they are financially stable enough to gift the funds. 

Before accepting the gift

A word of caution: Documenting the receipt of gift funds is very specific, so buyers shouldn't have their gift funds transferred before speaking with a loan officer. Contact your Movement Mortgage loan officer for gifting requirements based on the loan you're interested in.