If you're a first-time homebuyer, the only thing you might know is that buying a house costs money. What doesn't? That may even be your first thought as a recurring buyer. Although, not everyone realizes, or remembers, that gift funds may be a possibility to cut initial costs. Get ready to learn how gift funds work in the home buying process. 

What are gift funds?

This is money given to secure a home, often by family members. Let's say your 95-year-old grandfather has just been itching to send you a check to help you cover that down payment. And he doesn't expect you to pay it back. A) That's awesome! B) You'll need to prove it. Underwriters like to make sure the money in your account is your money. So with a gift like that, you'll just have to prove that what he gave you is 100% yours and not a loan.

So I can use gift funds for down payment needs?

The short answer – probably. The longer answer? Most loan types will accept gift funds for down payment needs. However, there may be some products that have different requirements and rules around them. Basically, you should make sure you have a conversation with your loan officer about this to ensure it's allowed for whatever product you proceed with.

Mortgage down payment gift rules

The biggest rule that you need to know for gifts funds is that you will need a verification letter. This document validates that this is a legitimate gift, and notates where it comes from. This helps the underwriter and processor be able to prove that these funds aren't any type of additional loans, or even fraudulent funds, that went unrecorded elsewhere. 

Good to know. Now what?

Make sure you connect with your loan officer to see what you need to utilize gift funds for down payment requirements. Aside from that, inquire about any potential down payment assistance programs that you may be eligible for in your state. There may be even more options for help on your down payment and closing costs than you realize.

It's important to be in the know for what your options are. Buying your home can be a giant step, and a large investment upfront. But know that you may have family members, and possibly assistance programs, that could be a resource to help with your initial costs. 

Connect with your local loan officer.