A legitimate source of a down payment can be from a gift as long as it meets certain requirements of the lender.
The person making the gift needs to be related to the recipient. In most cases, you might think of a parent or grandparent making this gift, but it can work the other direction. A child or grandchild could also make a gift to a parent or grandparent.
A person can donate up to $15,000 a year without incurring gift taxes and the recipient is not required to pay tax on it. A father and mother could gift $15,000 each to a child making it a total of $30,000. If the child was married, the father and mother could each donate $30,000 to their child and the child's spouse, if they were married.
There could be other avenues available to gift more than these amounts but would warrant talking to your tax professional about your individual situation.
Once the basics of the gift have been determined, the lender is going to require a written gift letter explaining the specifics before the loan package can go to underwriting. The letter needs to contain:
- The donor's relationship to borrower
- State the dollar amount is a gift and not a loan
- State that no repayment is required
- Signed and dated by the donor and borrower
- Include all contact information