Learn the rules about using gift money toward your down payment.
Can you use gift money as a down payment? The answer might be a bit more complicated than you think. So today, we’ll tell you all about it.
A down payment is a portion of the purchase price that you have to pay out of pocket when you buy the home. It can range from 3% to 20%, depending on the type of mortgage you’re using and the property you’re buying. A bigger down payment can help you afford a larger home or secure a lower interest rate. First-time homebuyers sometimes get gifts from their family members to put toward this down payment. If that’s you, know that there are a few stipulations.
Lenders will look at the amount of money you receive, and they may not let you use money from someone who isn’t close to you. Your lender might ask you to provide a gift letter and documents showing the gift money being transferred to your account. They might even ask the person who gave you the gift for a copy of their bank statement.
If you’re financing with a conventional loan, you can usually use gift money as long as it comes from family members like children, parents, in-laws, or domestic partners. FHA loans have stricter guidelines on who counts as family, but there is also an allowance for gifts from charitable organizations and your employer. These loans also allow you to take gift money from a public entity or government agency.
If you have a VA loan, you likely don’t have to make a down payment at all. You can still make one and use gift money toward it if you want, but that money can’t be from parties interested in the transaction, like the seller or your real estate agent.
No matter the type of loan, oftentimes there’s no limit on how much someone can give you. However, there are instances where you may have to make part of the payment yourself, especially if you’re buying an investment property.
If you have any questions about gift money or real estate in general, feel free to call or email us. We would love to help.