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If a family member or friend is offering to give you money to put towards the purchase of a new home, then you certainly will have an advantage in today’s market. If you use that money as part of your down payment for example, then you will increase the chances of having affordable monthly mortgage payments with a competitive mortgage rate. Good news, right?
While yes, do note that most lenders allow gift funds, they will require you to disclose the source of the funds. Not all loan options will allow gift funds.
Let’s explore more.
Who Can Gift Money Towards Your Home Purchase?
The short answer is – it depends. Monetary gift requirements will vary by the lender and the type of loan program (i.e., conventional, VA, USDA, etc.). If you are using the gift towards a down payment, some loan programs may only accept the funds from a blood relative or domestic partner (very common with conventional loans through Fannie Mae or Freddie Mac). Other programs, however, may allow gifts from a friend or a charitable organization.
Do You Need to Disclose the Source of the Gift?
YES! Any monetary gifts you receive for your home purchase MUST be disclosed to your lender – often in the form of a gift letter. When applying for a mortgage, information about your financial, credit, and employment histories is reviewed in deciding whether you qualify for a loan and how much you can realistically afford. If you don’t disclose the source of additional income, then you could be denied a mortgage.
What Information is Needed in a Gift Letter?
Your gift letter to your lender should include the following:
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- The dollar amount of the gift
- The donor’s name, address, and phone number
- The donor’s relationship with you
- The date the funds were transferred to you (you will need to provide bank statements to your lender documenting that you received the money)
- The financial information on where the funds are coming from including name, address, and account number
- The donor’s signed statement that no repayment is expected (read “Can You Repay a Gift?” below to learn more)
- The address of the property being purchased
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In some circumstances, you and the donor may need to provide additional information in the gift letter.
How Much Can be Gifted to You?
In most cases, if the monetary gift meets the requirements of the loan program, then there’s no cap on the amount that can be given. With that said, be sure to review the current federal and state laws. If you receive a large sum of money, you may have to report it on your taxes.
Can You Repay a Gift?
NO! And this is very important. The money gifted to you should be that – a gift. In other words, there is no obligation for you to repay it. If you plan to pay back the funds, then it is considered a loan and will be factored into your debt-to-income ratio to ensure you can afford your monthly mortgage payments. It may not seem like a big deal but reporting money that you intend to repay as a gift on your loan application is considered mortgage fraud.
Key Points of Using Monetary Gifts
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- Disclose all gifts to your lender
- Keep documentation of the funds (i.e., bank statements)
- Make sure the loan you are applying for accepts gifts
- Do not repay the gift, or disclose your intention of paying back the money you received
- Review tax laws regarding monetary gifts for home purchases
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If you have any questions about gifts, please give an Axia Mortgage Specialist a call.
Equal Housing Opportunity. Axia Home Loans is a registered tradename of Axia Financial, LLC. NMLS 27830.