Gifting down payment money? What you need to know.
A relative, usually a child has asked you to give them down payment money to buy a home. As parents, we are usually very willing to help. But are there any risks or complications when gifting down payment money to buy a house?
First, the gift has to be from a blood relative. There are two major and different gift rules. One being the rules for gifting money on a conventional loan, the other gifting money for an FHA loan. Gifted down payment typically involves extra paperwork for the person giving the gift. The rules require the gift come from a blood relative, and are designed to ensure the gift really is from the relative, not some sort of kickback from the realtor or seller. Lenders will require various levels for paper trailing the gift depending on the transaction type (conventional or FHA).
FHA DOWN PAYMENT GIFT
On an FHA loan, the entire amount needed to buy the home, both the actual down payment and any closing costs can be a gift. FHA rules require the gifting person to sign a gift letter, which indicates the money is a gift, and that the money will never be repaid. FHA also requires we get proof the giftor had the money to give, which means we need to see a copy of the bank statement of the account the money came out of. Lenders will also need to see the money deposited into the buyers account, and even get a copy of the cancelled check from the giftors account. Alternatively, the giftor can electronically transfer the money, or give the buy a cashiers check. If giving a cashiers check, the buyer should NOT deposit the check. Rather, just bring the original cashiers check to closing. The lender will also need a copy of the cashiers check before closing.
CONVENTIONAL DOWN PAYMENT GIFT
On conventional loans, usually all the giftor needs to provide to the lender is a sign gift letter. Just like on an FHA loan, the letter (provided by your lender) will state the money is a true gift, and no repayment will ever be required.
The amount of the down payment gift is different on conventional loans:
- – If the gift is 20% of more of the purchase price, the entire down payment can be a gift
- – If the gift is less than 20%, the FIRST 5% of the down payment MUST be the buyers own money.
We often times see the gift giver reluctant to share bank statements with the gift recipient. We understand. They often do not want the person receiving the gift to see what they have in their accounts. This isn’t a problem, as the gift giver can send the bank statements directly to the lender… and we promise to never share that account information with the gift recipient.