Using Down Payment Gift Money

It's very common nowadays for a first-time home buyers to receive down payment gift money.  Parents are usually the generous ones that will give their children gift money to help them start the home buying process.

The process of accepting a gift for your home down payment is not that difficult, just follow these simple rules, and the underwriter handling your case will surely grant you the loan.

1. Request for a  "Down payment Gift Letter" form from your lender 
The gift letter must be short and simple letter containing the following:

• The relationship between the home buyer and the person giving the gift.
• The amount of the gift.
• The address of the home being purchased.
• A statement that the money is a gift and not a loan that must be paid back.

Instead of downloading a sample from the Internet, request the down payment gift letter from your lender.  You'll never know what the sources might put in the letter from an Internet Download.

2. Prepare documentation
Underwriters will look for where the money came from and where it went.  In short, they want to see the proof that the money came from your parent's account and went directly into yours.

Be ready to provide the paper trail of the money coming out of their account and a proof that it was deposited to your account.  Make sure that it's the exact amount being declared in your "down payment gift letter".

Any discrepancies in the documentation will likely disqualify your use of "gift funds" entirely.

Additionally, if you will use Conventional financing, you will need to invest at least 5% of the purchase price from your own funds unless your total down payment is 20% or more.  If the down is 20% or more, then it can be called as a gift.  On the other hand, FHA does not require any cash from the buyer if down payment gift money is being used.

Most home buyers' have a difficult time coming up with the cash for a home down payment.  By using the cash gift to make a down payment for a mortgage, will give you an advantage in qualifying for a mortgage and get lower interest rate.  If you are lucky enough to receive that kind of help, just make sure you follow the correct guidelines mentioned in this article. For any questions, please don't hesitate to contact me.