Using Gifts For Down Payments

In order to get into the housing market, many homebuyers are accepting gifts from family or friends in order to meet down payment requirements by lenders. In fact, as of 2012, one in five Baby Boomers has either gifted, loaned or co-signed a loan to help children or grandchildren buy their first home.

But along with other borrowing restrictions following the housing bust in 2008, lenders cracked down on down payment gifts, too. No longer can a homebuyer “pass the hat” to relatives and friends in order to come up with enough cash to put down on a home, whether it’s a 3% minimum required for an FHA government-guaranteed loan or 20% required for a large conventional Fannie Mae or Freddie Mac-bound loan.

Because gifts are a gray area, lenders are requiring more documentation for down payment monies. For example, a parent may provide a few thousand dollars to an adult child to use as a down payment — but is the money a gift or a loan? Lenders may require borrowers and gift-givers to provide a certified downpayment gift letter or to sign a affidavit.

Such affidavits must include:

The amount of the gift, accompanied by a corresponding cashier’s check

The name and address of the gift-giver and relationship the gift-giver has to the homebuyer

The purpose of the gift — to be used only as a down payment on the subject property, complete with the property’s address

A statement confirming that the gift is not a loan, and does not need to be repaid

Signatures of the borrower and the gift-giver

Because lenders require a paper trail, allowing parents to simply transfer money into the borrower’s account to mix with the borrower’s funds is discouraged. First, a large deposit raises the borrower’s income and alters the bank statements, possibly allowing a borrower to qualify for a home that in reality is too expensive.

Banks also limit the size of gifts in relationship to the total down payment. For example, some loan programs require the borrower to contribute at least 3% to 5% of the down payment if the down payment is less than 20%, while other programs allow the entire down payment to be supplied by a gift.

If you’re planning to use a gift as part or all of your down payment, ask your lender how to meet the appropriate requirements.

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About thenoelteam

As a Broker with RE/MAX Alliance, I work energetically for my clients whether they are a buyer or seller. I help you achieve your goal of owning a home or getting the best price for your home in the shortest time possible. After graduating from UCLA with a degree in communications and finance, I was licensed in 1977 and since then I have sold over 3600 properties amounting to over $1 billion in sales. I currently rank in the top 10 in home sales for Colorado. I offer the same quality of service and superior communication to all clients, ranging from starter homes to multi-million dollar estates, commercial and income properties, relocations and foreclosures My goal is to provide you with the best representation possible whether you are buying or selling. Over the years, one of the things that I've discovered is that there is a difference in the way individual Realtors do business. For me, I have always felt that honesty and personal integrity are the foundations upon which a successful business and career are built and sustained. I have an extensive background and knowledge base in real estate, including financing, which has enabled me to provide outstanding, quality advice and service not found with many agents today. My commitment to communication creates a positive relationship between my client and myself that results in a successful property sale or purchase. My passion for real estate, commitment to my clients and personal integrity has helped me to achieve success placing me in the top 1% of all brokers in nationwide. In my career, I have earned a number of awards and received considerable recognition for my success but the most significant recognition comes from the fact that over 75% of my business comes from past clients. My success is a true measure of my client satisfaction.
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