Whether you’re buying your first home or your tenth, you may find you need a little help coming up with a down payment or closing costs. If you’re fortunate enough to have someone who’d like to contribute to your homeownership goals, this FAQ is for you!
What kinds of loans allow you to use gift funds (for the purchase of a single-family primary residence)?
- FHA loans: Gift funds may be used for up to 100% of down payment and/or closing costs.
- VA loans: You may not need a down payment, but if you do, gift funds may be used. They may also be used for closing costs, if you incur any.
- USDA loans: You may not need a down payment, but if you do, gift funds may be used. Like VA loans, gift funds may also be used for closing costs.
- Conventional & Jumbo loans: In some cases, gift funds may be used for up to 100% of down payment and/or closing costs. Speak with a loan officer for details.
Who can provide gift funds?
Most lenders will accept family members (including your spouse or fiancé) as an acceptable donor of gift funds. Other parties like close friends, employers, certain charitable organizations and other public entities may also be permitted, but these cases are less common. Gifts must be from the donor’s own funds, and the donor may be asked to provide source documentation and a gift letter (see below).
Who cannot provide gift funds?
Yes, there are people who cannot gift you money for your down payment! They are generally those who have a financial stake in your home purchase, such as the home seller, homebuilder, developer, mortgage lender or real estate agent. Any funds from those sources cannot be considered gifts, but would instead be discounts off the sales price, concessions or other considerations.
It’s important for your lender to know that gift funds are truly a gift, with no expectation of future repayment. A gift letter is one way to clearly document the source of that money and confirm it is not the result of additional debt.
Whether you need a gift letter or not will depend on your lender and your situation. If the gift funds have been in your bank account for 60 days or more, for example, they may be considered “seasoned” and might not require a gift letter. Or, if the contribution is small compared to your other income and assets, your lender may not request a gift letter.
What does a gift letter need to say?
Your lender should be able to tell you what information it wants to see on your gift letter, and may even provide a template for you to follow. In general, a gift letter should include:
- The donor’s name, address, phone number and relationship to you (the gift recipient)
- The address of the property you will purchase
- The exact dollar amount of the gift
- The source of the gift funds (bank account information)
- The date the gift was/will be given
- A statement that the funds are a gift, with no expectation of future repayment
- The donor’s signature
Is there anything else I should know?
There may be tax implications for you and/or the gift giver. You may want to consult an accountant or financial advisor to make sure all your bases are covered!
Have mortgage questions? A loan officer at our affiliate mortgage company, HomeAmerican Mortgage Corporation will be happy to assist you. Call 866-400-7126.
Other helpful resources:
- Free First-time Homebuyer Guide
- Mortgage Quick-reference Guide (also free)
- FHA Gift Fund Guidelines
- Fannie Mae (conventional loan) gift fund guidelines
Please note: HomeAmerican Mortgage Corporation’s principal offices are located at 4350 S. Monaco Street, Suite 200, Denver, CO 80237. HomeAmerican Mortgage Corporation (NMLS Unique Identifier #130676; NMLS Consumer Access website: http://www.nmlsconsumeraccess.org), 866-400-7126. Arizona Mortgage Banker license #0009265. Licensed by the Department of Business Oversight under the California Residential Mortgage Lending Act. Colorado Mortgage Loan Originator License #LMB100019179. Check the license status of your mortgage loan originator at http://www.dora.state.co.us/real-estate/index.htm. In Nevada, all advertised loans are offered and funded by HomeAmerican Mortgage Corporation, which can be contacted at 7770 S. Dean Martin Drive, Suite 308, Las Vegas, NV 89139, 702-638-4450, License #67. Licensed by the New Jersey Department of Banking and Insurance. Licensed by the Virginia State Corporation Commission, MC-358. Licensed by the Washington State Department of Financial Institutions (CL-130676).