Don't look a gift horse in the mouth and more importantly, don't make it a papertrial nightmare for someone that is generous enough to help you buy a home. Also speak to your lender if you need to get a gift during the home buying process.
Follow These 6 Steps When Using Gift Funds
Gifts are allowed in most cases but the problem is, if you don’t accept the gift in a “lender-friendly” way, the mortgage underwriter could reject it, and not allow it.
Six Steps To Success With Your Down Payment Gift Funds
You can’t just deposit a cash gift into your bank account. You have to follow a series of steps and keep records.
1. Provide an acceptable gift letter signed by all parties. Provided by the lender.
2. Provide a bank statement from the gifter’s account to show proof of funds.
3. Provide documentation of the gifter’s withdrawal of funds via teller receipts in the exact amount of the gift, stamped and signed by the teller.
- If the gifter is sending a wire, provide a copy of the wire transaction.
- If the gifter is providing a check or money order provide a copy of it and then provide an updated statement after the check has cleared the account.
4. Provide documentation of the giftee’s deposit of funds via teller receipts in the exact amount of the gift, stamped and signed by the teller.
5. Provide a new statement showing the deposit and updated balance. Make sure the statement goes back from the date of your last statement you might have previously provided to cover any gap.
6. Make sure all statements show name, at least the last four of the account number, bank name and balance.
- Any time you get a statement from a bank teller make sure they always give you a teller stamp signed and dated.
- Any time you print statements online make sure it includes the URL to show proof that it was from online.
Lenders require these 6 steps for two basic reasons. First, they want to make sure that the cash gift is “clean” (i.e. not laundered). Second, they want to make sure the gift is really a gift and not a loan-in-disguise. It’s why lenders typically require that the loan application be accompanied by a signed, dated letter. This will be provided by your lender for you to fill out.
I am the [relationship to recipient] of [name of recipient] and this letter serves as evidence that I am gifting [name of recipient] [amount of gift] to be used for the purchase of the home at [complete address of property]. This is a gift — not a loan — and there is no expectation of repayment. Signed, [Signature of gifter]
Keep The Cash Gift Funds Separate From Your Other Money
As an additional step, home buyers receiving cash gifts should make sure that gifted funds are not commingled at the time of deposit.
If the cash gift is for $10,000, therefore, the bank’s deposit slip should indicate that a $10,000 deposit was made — nothing more, nothing less. Don’t add a random $100 deposit to the transaction, in other words. The $100 deposit should be a separate transaction.
It’s also worth noting that gifting funds between family members can create both legal and tax liabilities.
If you’re unsure about how donating or receiving a gift may impact you, call or email me directly. If I can’t help you with your questions, I can refer you to somebody that can.
Mortgage Loan Officer
NMLS: 191647 / LMB: 100013240