By Doug Goelz, Mortgage Services
In most cases, you can use gifts for your down payment, but lenders have many rules about what constitutes an acceptable gift. Keep the following guidelines in mind when planning a gift as part of your financing strategy:
- Gifts must come from a family member or fiancé. Multiple gifts from multiple sources are acceptable. However, lenders do not allow gifts from employers or friends to be part of your transaction.
- The giver has to sign a letter stating they don’t expect any repayment of the gift. In some cases, the lender may even want the giver to show an account statement proving they had the money to give.
- The gift must be to the borrower(s) on the loan. Gifts to a spouse not on the loan, or to your children, are not allowed on the transaction. If parents and/or grandparents want to give several gifts to you and your minor children in order to keep within certain IRS gift thresholds, gift checks should be written in very specific ways in order to meet both IRS and lender requirements.
- In most cases, the best way to transfer the money from the giver to you is via wire transfer directly to escrow near the end of escrow. If the giver writes you a check or sends the money to you online, lenders require more documentation from both you and the giver to show the source of the gift. Always consult with your lender on the best way and time to have gift money transferred.
- In many cases, 100% of the down payment can be a gift, as long as the gift is at least 20% of the purchase price. If the gift is less than 20% of the purchase price, you may have to contribute at least 5% of the purchase price from your own funds.
- Finally, many jumbo loans require that you have reserves that you can get your hands on in an emergency (e.g., through an early withdrawal of retirement funds). In general, reserve requirements cannot be met with gift funds.
A cash gift can get property buyers over the hurdle of the necessary down payment in our red hot market. If there is a gift in your property-buying future, discuss with your lender and the giver all the gift-giving protocols so that your transaction can be as smooth as possible.
Questions? Feel free to get in touch with me at 415-730-4665 or [email protected]
