Well, sometimes you can, but sometimes you cannot.
Getting a home loan is about more than just putting up a down payment and borrowing funds for the rest. Lenders look at your all of your income, credit score, and your assets or liabilities to see if you will be well able to pay back the loan. They want to know for sure if you can afford not just the loan payment, but maintenance, upkeep, insurance, and taxes on your home. They want to know if any large deposits into your account belong to you outright or if they are loans that you’ll have to pay back. When you plan to use gifted money to buy a house, it’s essential to account for it so that your lender feels confident in your home purchase.
Make your list!
Since gifts toward a down payment may come from a variety of sources such as family, friends, even an employer, your lender will want to know that is isn’t in a stocking stuffed with contingencies. That sort of transparency requires a gift letter from the donor that clarifies that the money is entirely a gift—not a loan—and that it doesn’t have any other strings attached that could make you unable to pay your mortgage. Otherwise, your “gift” might just be a lump of coal instead.
This is what the gift letter needs to include:
- The gifter’s legal name
- The gifter’s address and contact information, including a phone number.
- Your exact relationship to the giver (parent, god-parent, child, cousin, employer, etc.)
- The gift’s full dollar value — this number needs to match what goes into your bank account exactly.
- A paragraph that specifies the funds are a gift, not a loan that requires a future repayment.
- The gifter’s signature
- The street address of your intended purchase
Every gift needs a separate letter, even if it’s from the same gifter. So if you get one gift for your birthday and another for Christmas, each needs its own letter matching the fund amount. In addition, an FHA loan requires extra paperwork and bank statements from the person gifting funds. Certain lenders may also request additional proof to clarify this information before accepting the gift toward your down payment.
Be sure to check it twice!
In addition to requirements from your lender, some gifts may have income tax implications, so check with your tax advisor. Your gifter should do the same since having to give some of the funds to the government could reduce the gift to less money than you’re counting on.
Wrap it up with a bow!
The best idea is to maintain excellent records of any funds you intend to use for a down payment. To keep the paper trail neat and tidy, request the funds in the form of a check so that you can make and keep copies. Deposit each check into your account in separate, single transactions so that your lender can follow the money into your account. The best place to deposit it is into a savings account that you’ve set up expressly for your down payment and closing costs.
Give the office a call for more ideas about how to save up and account for a down payment. If you’re ready to buy, check out these new homes on the market and give me a call.