How to use a Down Payment Gift to Help Purchase a Home
Many young homeowners, especially first-time homebuyers, use a cash gift (down payment gift) to help with a down payment on a home. There are certain restrictions and guidelines a borrower must follow when using a cash gift for a down payment.
What are the Mortgage Down Payment Gift Rules?
The following are a few mortgage down payment gift rules that the home buyer must follow:
- Typically, the gift must come from a relative or a close friend
- The donor must provide a down payment gift letter, which is explained below
- The mortgage lender must review any large deposits (such as gifts) to verify the source of the money
- The mortgage lender must be able to ensure that all of the money in your bank account that is used to qualify you for the loan is in fact, your money.
What is a Down Payment Gift Letter?
A down payment gift letter is a letter from the cash donor stating that you do not need to pay back the money. The down payment gift letter must include the following:
- Your name and the donor’s name
- The dollar amount of the gift
- Your relationship with the donor (daughter, cousin, friend, etc.)
- A statement from the donor stating that you do not need to repay the gift amount
- The address of your subject property
- A statement that explains where the gift money is coming from (an investment account, checking account, savings account, etc.)
- The donor’s signature
Always remember to keep proper documentation regarding your down payment gift and gift letter. It is essential to explain where all the money is coming from in your accounts to your mortgage lender.