It can be extremely hard to save for a down payment for a new home. Some people have turned to accepting gifts from friends and family. Using gifted money for a down payment was a popular way of getting the 20% or more needed at closing.
.But then the big housing bust of 2008 happened. And like with most things housing related, being able to use gifted money has changed. Regardless of the amount of the down payment, new restrictions make it harder, if not impossible to use gifted money.
Lenders are requiring more documentation for loans these days and that includes documentation on where down payment money comes from. Gifts fall into a grey area. For example, a parent can give a few thousand to their adult child that can be used as part of a down payment, but the bank will want to know if that money is a gift or a loan.
Because of the paper trail now required by lenders, they try and discourage parents from just transferring money to their child’s account. The one-time large deposit creates an anomaly on the buyer’s bank statement and can alter their actual income. Having a higher income could mean they will qualify for a home more expensive than they can really afford.
If lenders do see a large deposit on bank records they may require a certified down payment gift letter or a signed affidavit from the buyer and the parent – or gift giver.
The affidavit has to be very specific and include the following:
The amount of the gift, accompanied by a corresponding cashier's check
The name and address of the gift-giver and relationship the gift-giver has to the homebuyer
The purpose of the gift -- to be used only as a down payment on the subject property, complete with the property's address
A statement confirming that the gift is not a loan, and does not need to be repaid
Signatures of the borrower and the gift-giver
Just because the buyer has the affidavit, it doesn’t mean the gift can be the full amount of the down payment. There are some mortgage program s that will allow the entire down payment to be gifted, but others may require the borrower to contribute 3 – 5% of their own money for the down payment.
If you’re going to use gifted money, it is always best to check with your lender of the specific requirements before falling in love with a house!
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