Potential homebuyers with generous connections may benefit from using gifted down payment funds. With a down payment gift letter, you can provide the money for a down payment to your mortgage lender even if it was obtained as a gift.
Here are some of the common questions and answers about payment gift rules in real estate:
A down payment gift is when somebody contributes their own funds to help you afford a down payment for a mortgage. Mortgage lenders have specific rules about down payment gifts, including requirements for proving receipt of the funds.
For conventional loans, acceptable gift funds must come from relatives. This includes parents, grandfathers, siblings, kids, fiancés and spouses. It can also include relatives via adoption or guardianship.
Other loans – such as those offered by the Federal Housing Administration – provide more freedom to give money as a gift. A down payment gift can also come directly from employers, unions, charitable organizations or other non-family members.
A gift letter is an official document proving the money for the down payment is actually a gift and not a loan. It must have information for both the giver and recipient, including contact information, source of funds and specific instruction for what the gift funds can be used for.
While you might not have to pay taxes on gift money, you may be required to declare it if it's over a certain amount. Any payment gift amount of $15,000 or more must be reported to the IRS.
Using gift money can be an excellent option for affording a down payment on a new home. As long as you follow the rules for your specific mortgage lender, a mortgage gift letter can be your ticket to home ownership.
I'm a residential Realtor in the Twin Cities and surrounding suburbs and I work closely with my husband, Andrew, who is a custom home builder and remodeler. Our partnership turns out to be a very good collaboration for our clients benefit. We work with both buyers and sellers on personal residence purchases and sales as well as investments and second homes. We take great pride in being extremely organized and attend to a great level of detail in home preparation for our sellers as well as details to the purchase of a home. We strive to keep our clients real estate transaction a seamless process. Additionally, every transaction is different so a sense of creativity is helpful and important in the process of buying and selling a home. This helps sellers get their properties in front of more buyers and it helps our buyers look at homes in different ways if things aren't quite as they'd like. Our knowledge and expertise in the industry and process as well as home construction result in a reassuring experience to our clients.
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