Buyers, Mortgages
The Right Way To Give Or Receive A Gift For a Downpayment
August 9, 2010 by tom · Leave a Comment
When a home buyer is given cash as a gift for a down payment to purchase a home, there is a right and a wrong way to receive that money.
The right way includes:
- Completing an acceptable gift letter
- Documenting the withdrawal of the gift money with receipts
- Documenting the deposit of the gift money with receipts
The wrong way? Completely ignore the rules that mortgage lenders clearly lay out for you.
Mortgage lenders usually look closely at gifts because they want to be sure that the “gift” is not really just a loan-in-disguise. If it’s a loan, the total dollar amount will need to be counted against the home’s total loan-to-value, and higher loan-to-values typically increase the lender’s risk, so it’s something they try to avoid when they can.
If the money really is a gift, a signed and dated gift letter should accompany the home loan application. Typically, a gift letter will include the name of donor, the name of the recipient, the relationship between the two parties, the amount of the gift, the address of the property for which the gift is to be used to pay for, the fact that no repayment is required or expected, and an assurance that the person making the gift or the source of funds is not in nay way party or beneficiary to the transaction, e.g. not the broker, seller, agent, loan officer, builder and so on. In most cases the person giving the gift will be required to document where the money came from, such as a bank account or a brokerage account.
For additional evidence that the gift is legitimate, the recipient should make sure that deposited funds are not commingled at the bank. If the gift is for $12,000, for example, then the recipient’s bank deposit receipt should indicate that a $12,000 deposit was made.
There may be legal and tax liabilities when gifting funds between family members so if you’re unsure about how donating or receiving a gift may impact you, call or email me. If I can’t answer your question, I can certainly refer you to somebody that can.
