Updated: Apr 1, 2019
It can be a challenge to come up with the necessary funds to cover down payment and closing costs for some home-buyers. Fortunately, if you have the option, there are many loan programs that allow the use of gift funds to help with a home purchase. There are some general rules that you and your “gift donor” need to know if you’re going to talk with someone close to you about receiving a gift. Guidelines for gifting are based on several factors (i.e. loan program, occupancy type, property type, down payment). Here is a general overview of how gift funds can be used, though we encourage you to call us to help with the specifics of your unique transaction.
Must be a direct relative (spouse, child, other dependent or individual related by blood, adoption, marriage, legal guardianship)
A fiancé, fiancée or domestic partner
Cannot be affiliated with an interested third party to the transaction
The donor must provide a gift letter. The letter needs to state the donor’s name and contact information, dollar amount of the gift, and also that the funds are a gift with NO TERMS OF REPAYMENT. We have a template letter that you can use. Additionally, the transfer of the gift funds from the donor to you must be documented.
Allowable Occupancy Types
Your occupancy type and loan type are a determining factor as to whether gift funds can be used.
Conforming: Gift funds are only allowed for Primary Residence or Second Home (NOT allowed for Investment Properties).
FHA and VA: Gift funds only allowed for a Primary Residence.
Jumbo: Gift funds only allowed for a Primary Residence or Second Home.
How much can be gifted?
The type of mortgage you plan to obtain (i.e. Conventional Conforming, High Balance Conforming, VA, FHA, Jumbo) will determine the actual amount that can be gifted.
Conforming: In general, lenders will allow all funds for the transaction to come as a gift if the borrower is making a down payment greater than or equal to 20 percent of the purchase price.
FHA and VA: The entire amount for down payment & closing costs can be gifted.
Jumbo: Typically, lenders require that a minimum 5% of purchase price come from the borrower’s own funds. As soon as the first 5% of the borrower’s own funds are verified, the remaining down payment and closing costs can be paid for with a gift.
Please note that the donor may be required to pay taxes for any gift funds that exceed the maximum allowable under the IRS tax code. Make sure you speak with a tax professional to determine any potential tax liabilities.
Gift funds can be a great way to help obtain the home of your dreams, but several factors should be considered when determining whether they can be used and how much is allowable. To learn more about gift funds and how they might work for your specific transaction, please contact us today.