When someone is looking to purchase a home, a gift made be used to provide the entire down payment needed for the home purchase.
For conventional loans, that down payment can be as little as 3% of the purchase price and for FHA loans, that amount can be as little as 3.5% of the purchase price.
The process for using a gift is actually fairly simple, but it is important to follow a few key steps when obtaining a gift to purchase a home.
1) You must document the gift through a signed gift letter and document that the gift is not repayable and a true “gift”
2) You must provide a paper trail of the funds from the donor’s account to the buyer’s account.
Let’s take a look at all of these items in further detail.
Gift Letter: The gift letter itself just needs to include the following information:
First, write a gift letter that follows the includes the following information:
- The dollar amount of the gift itself
- The address of the property being purchase
- The relationship between the donor of the gift and the recipient
- A notation that repayment is not required and that the gift truly is a “gift”
This format will work for Conventional or FHA loans and your lender may also provide you a standardized gift letter which can be filled in to provide all of this information as well.
Paper Trail Of Funds: The gift funds then need to be proven that they were withdrawn from the donor’s bank/investment account and deposited into the recipient’s bank accounts. The easiest way to do this would be one of the following two ways.
1) If a check is written - provide a copy of the cancelled check showing the recipient’s name and showing the donor’s name on the check (from the donor’s bank account).
2) If the funds are transferred - provide an account printout from the donor’s account that the funds were transferred from.
You would then also provide a printout of the recipient’s bank account, showing the gift funds in their account and that would provide a full paper trail of funds.
And that is all it takes. If these steps are followed, then you will be ready to use gift funds for the down payment on a home purchase.
As always, everyone’s situation is unique and to properly look into your specific situation, make sure and consult with a licensed local lender such as Strategic Mortgage to fully look over your complete situation.
For more information on current home loan programs and options for existing and potential home owners, please contact Bill Kamboukos of Strategic Mortgage at (480) 219-3682 or by emailing: info@strategicmtgaz.com or online at www.strategicmtgaz.com
Strategic Mortgage – AZBK#0909514 - NMLS#158804
Equal Housing Lender – Vasilios Kamboukos – NMLS#160440
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