For many buyers, especially first-time homeowners, coming up with the down payment can feel like the biggest hurdle to purchasing a home. The good news is that many loan programs allow gift funds to help cover some or all of the down payment and sometimes even closing costs.

Gift funds can be a powerful tool that allows buyers to become homeowners sooner, but there are a few important guidelines lenders must follow.

Who Can Give Gift Funds?

Most mortgage programs allow financial gifts from family members. Depending on the loan type, acceptable donors may include:

• Parents or step-parents

• Grandparents

• Siblings

• Children

• Aunts and uncles

• Fiancés or domestic partners

• Close family friends with a documented relationship (some lenders allow this)

For certain loan programs, employers, charitable organizations, or housing assistance programs may also contribute gift funds.

However, the gift cannot come from anyone who has a financial interest in the transaction, such as the seller, real estate agent, builder, or lender.

Documentation Lenders Require

Lenders must verify that the funds are truly a gift and not a loan that would increase the buyer’s debt. Because of this, several documents are typically required.

1. Gift Letter

A signed gift letter is required from the person giving the funds. The letter usually includes:

• Donor’s name, address, and phone number

• Relationship to the buyer

• Exact dollar amount of the gift

• Property address being purchased

• A statement confirming the funds are a gift and do not need to be repaid

2. Proof of Funds

Lenders may request documentation showing where the money came from. This can include:

• A bank statement from the donor showing the available funds

• A copy of the check or wire transfer

• A deposit receipt showing the funds entering the buyer’s account

The goal is to create a clear paper trail so the lender can verify the source of the money.

Is There a Maximum Gift Amount?

In many cases, there is no strict dollar limit on gift funds. However, the rules depend on the type of mortgage loan being used.

For example:

• FHA loans often allow the entire down payment to come from gift funds.

• Conventional loans may require the buyer to contribute some of their own funds depending on the loan structure and down payment size.

In addition, donors should be aware of IRS annual gift tax limits. As of recent guidelines, individuals can typically give up to $18,000 per person per year without filing a gift tax return. Larger gifts may still be allowed but could require additional tax documentation from the donor.

A good lender will always help both the buyer and the donor understand these guidelines before the transfer is made.

The Bottom Line

Gift funds have helped many buyers achieve homeownership sooner than they thought possible. When handled correctly, they are a completely legitimate and common way to assist with purchasing a home.

If you’re considering using gift funds for your home purchase, the key is to speak with your lender early so the documentation and transfer are done correctly from the start.

Buying a home is often a family milestone, and sometimes that journey includes a little financial support along the way.

 

Dawn Richardson

Epique Realty 

404-974-5632

www.atlantaliving365.com