Using Gift Funds for Your Down Payment – Rules & Requirements
How to Use Gift Funds for Your Down Payment
Buying a home is a big financial commitment, and coming up with a down payment can be one of the biggest challenges. The good news is that gift funds from family members or other approved sources can help. However, there are specific rules and guidelines you need to follow to ensure the funds are acceptable to lenders.
What Are Gift Funds?
Gift funds are money given to a homebuyer to be used for a down payment and or closing costs, with no expectation of repayment. These funds can come from family members, employers, or certain organizations, depending on the loan type.
Who Can Give Gift Funds?
Lenders have strict rules about where gift funds can come from. The allowed sources depend on the loan type:
Family members, domestic partners, or a fiancé for conventional loans. Family members, employers, labor unions, or government agencies offering homeownership assistance for FHA loans. Generally, only family members or close relatives can provide gift funds for VA and USDA loans.
Key Rules for Using Gift Funds
Funds must be documented. Lenders require a gift letter stating the amount, donor’s name, relationship, and confirmation that repayment is not required. The source must be verified. Lenders may request bank statements to prove the funds were transferred legally. Gift funds cannot come from a loan. Borrowers cannot receive down payment gifts from sources that expect repayment.
How to Properly Use Gift Funds
Get a gift letter. Have the donor provide a written statement confirming the gift. Transfer the funds correctly. The money should be transferred directly from the donor’s account to yours to maintain a paper trail, or directly to the title company from the donor's account. Keep documentation. Save copies of bank statements and transaction records to present to your lender.
Gift funds can be a great way to ease the financial burden of homeownership, but following lender rules is crucial. Before using gifted money, consult with a loan officer to ensure compliance with loan program requirements. This will help ensure a smooth process and a happy on-time loan closing!
Have questions about using gift funds for your down payment? Contact us today to learn more.