On the first day of Christmas my true love gave to me …. a down payment for a new home. As a lender we commonly see transactions where the home buyer is receiving a gift from a relative for the down payment. Since it is the gifting season, we thought we should highlight some of the rules associated with gifting a down payment.
For primary residences, conforming and FHA rules allow the entire down payment to be in the form of a gift. The donor must be a relative which is defined as a spouse, child or other dependent, or other individual who is related to the borrower by blood, marriage, adoption, or legal guardianship; or a fiancée, or domestic partner. Neither Fannie Mae nor FHA mentions anything about a donor with a white beard, “broad face, and a little round belly, that shook when he laughed like a bowl full of jelly.” The donor may not be affiliated with any other party to the transaction such as a builder, developer, or real estate agent.
Just as the home buyers’ own funds must be documented, gift funds also require documentation. A letter signed by the donor, called a gift letter, must include the following information:
· Dollar amount of the gift,
· Date funds were transferred,
· Statement that no repayment is expected; and
· The donor’s name, address, phone number, and relationship to the home buyer.
The lender must also verify that sufficient funds to cover the gift are available in the donor’s account, or have been transferred to the home buyer. Acceptable documentation for conforming loans includes:
· Copy of the donor’s check and home buyer’s deposit slip,
· Copy of the donor’s withdrawal slip and the home buyer’s deposit slip,
· Copy of the donor’s check or wire to the closing agent, or
· Copy of settlement statement showing receipt of the donor’s funds.
FHA has slightly different documentation requirements. Either way, no gift wrapping is required. Happy Holidays!