Using Gift Money to Buy a House
Lenders allow home buyers to use cash gifts as down payments on a home. Read up on lender rules for gifts and down payments; and, use our interactive Down Payment Gift Letter wizard to sail through your loan approval.
What Is A Down Payment Gift?
When you buy a home, you get to choose the size of your down payment.
You can make a large or small down payment; or, use a no-down payment loan to put nothing down whatsoever.
You can even use somebody else’s money as part of your down payment.
There are more than 600 down payment assistance programs available nationwide, with grants available of up to $25,000; and, lenders also allow you to accept cash gifts for your down payment on a home.
When you receive a gift of cash, the amount you can receive is limitless and the rules apply equally to first-time home buyers and seasoned buyers of homes.
When you receive a cash gift for down payment, though, you’re required to follow the rules.
What Are The Down Payment Gift Rules?
|Can a cash gift be used when buying a primary home?||Yes||Yes||Yes||Yes|
|Can a cash gift be used when buying a vacation home?||Yes||No||No||No|
|Can a cash gift be used when buying an investment property?||No||No||No||No|
|Can a cash gift come from a relative by blood, marriage, domestic partnership, adoption, or legal guardianship?||Yes||Yes||Yes||Yes|
|Can a cash gift come from a fiancé or fiancée?||Yes||Yes||Yes||Yes|
|Can a cash gift come from a friend?||No||Yes||Yes||Yes|
|Can a cash gift come from an employer?||No||Yes||Yes||Yes|
|Can a cash gift come from a charitable organzation?||No||Yes||Yes||Yes|
|Can a cash gift come from a real estate agent or builder?||No||No||No||No|
|Can a cash gift come from the home seller?||No||No||No||No|
Mortgage lenders know that home buyers sometimes receive gifts of cash for the down payment on a home; and, they’re alright with it.
It’s perfectly acceptable to use cash gifts to help buy a house. However, there are rules for how cash gifts work and the rules vary by mortgage loan type.
Down payment gift rules for conventional mortgages
Conventional mortgages are loans backed by Fannie Mae and Freddie Mac, which includes special low-down payment loan programs such as the HomeReady mortgage; the Conventional 97 mortgage; and, the HomePossible mortgage.
For home buyers using a conventional mortgage to finance their home, 100% of the down payment can come from a cash gift.
The lone exception is when a buyer is buying a home with either 2-, 3- or 4-units, or a home that’s a vacation home; and, the total down payment is less than twenty percent overall.
For everyone else, the cash gift of down payment can be the entirety of their down payment on the home.
Down payment gift rules for FHA mortgages
FHA mortgages are mortgages backed by the Federal Housing Administration. The FHA’s mission is to make U.S. homes easier to buy, and more affordable for everyone.
One way in which the FHA fulfills its mission is by making it easy for buyers to use cash gifts for down payment on a home.
There are fewer restrictions as compared to conventional loans.
For example, with FHA mortgages, 100 percent of a buyer’s down payment can come in the form of a gift. This rule applies to all homes, regardless of the number of units.
The FHA also allows cash gifts to come from a friend.
Down payment gift rules for VA mortgages
VA mortgages are mortgages backed by the Department of Veterans Affairs. They’re available to veterans and active members of the U.S. military; and, require no down payment whatsoever.
VA loans are zero-money-down, at your option. You can put nothing down for a VA loan or you can put something down.
When you choose to put something down, that something can be your cash gift. The VA won’t ask for you to put your personal money into the transaction, regardless of whether you’re buying a home, a condo, or a multi-unit property.
The VA allows for 100% cash gifts.
Down payment gift rules for USDA mortgages
USDA loans are loans backed by the U.S. Department of Agriculture. USDA loans are similar to VA loans in that the program doesn’t require a down payment.
As a home buyer, though, you’re welcome to make a down payment if you want to; and, that down payment can come from a cash gift.
The USDA doesn’t require home buyers to have their own money in a home-buying transaction. Buyers using the USDA mortgage program can use their down payment gift for the entirety of what they put down.
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3 Steps: How To Receive A Cash Down Payment Gift
Nearly 25% of first-time home buyers take cash gifts and use them for a down payment on a home, according to the most recent National Association of REALTORS® Profile of Home Buyers and Sellers report.
Mortgage lenders allow cash gifts with no restrictions on how big the gift can be. They verify, however, where the money came from and how it got to your account.
They do this to make sure the funds aren’t coming from the sale of contraband or something similarly illegal.
Follow these three steps when you’re receiving a cash gift for down payment on a home.
1. Write a proper mortgage gift letter
When you’re receiving a cash gift for down payment, your mortgage lender will want a signed letter that says the cash gift is actually a gift and not a loan.
A proper down payment gift letter, which is sometimes known as a gift letter affidavit, includes the following:
- The gift giver’s name, address, and contact information
- The gift recipient’s name and relationship to the donor
- The dollar amount and approximate date of the gift
All parties must sign the down payment gift letter for it to be valid. Lenders accept both hand and digital signatures on gift letters.
2. Remind the down payment gift giver to keep a proper paper trail
When you’re receiving a cash gift for down payment on a home, you’re required to provide a down payment gift letter to the lender which names the giver, and the size, of the gift.
To verify that your gift has come from the person named in your letter, and to verify that the size of the gift matches the size shown in your letter, prepare a paper trail for your lender.
You can satisfy the paper trail requirement in one of two ways:
- With a copy of the gift giver’s paper check or wire confirmation
- With a copy of the gift giver’s withdrawal receipt from the bank
Lenders accept paper trails in both physical and digital formats. Use whichever is easier for you.
3. Deposit the cash gift into your account, by itself
When you receive a cash gift for down payment on a home, there’s a proper way to deposit the gift into your account to keep your lender happy.
Specifically: deposit the cash gift by itself, and get a deposit slip for the exact dollar amount. Here’s why.
Your mortgage lender will only allow your cash gift to be used as a downpayment if the dollar amount shown in the gift letter matches the dollar amount listed in the gift giver’s paper trail; and, the amount of your bank deposit exactly.
If you deposit your gift check in the same bank transaction as another check, your lender can’t do its verification and it will forbid your gift funds from being used in your purchase.
Deposit your gift funds separately.
Want to find out more?
The Down Payment Gift Letter Template
Mortgage down payment gift letters follow a template. They list the gift giver and gift recipient; the dollar amount and date of the gift; and, a statement which says the gift requires no repayment.
When you need a cash gift down payment letter, whether you’re the gift giver or gift receiver, you have a few options:
- Write your own letter and give it to the lender
- Hire an attorney to write your letter for the lender
- Download a pre-written mortgage gift letter and fill-in-the-blanks
Wizard: Make Your Own Gift Letter
You can also use our Mortgage Down Payment Gift Letter Generator to make a gift letter for your personal use. The generator asks for 7 inputs and prints your letter to a PDF.
The Mortgage Down Payment Gift Letter Generator works for all of the most common mortgage types including conventional loans, FHA loans, VA loans, USDA loans, and many private-money loans as well.
Common Questions About Mortgage Down Payment Gifts
Can my parents give me a cash down payment for a home?
Yes, home buyers can receive cash gifts for down payment from a parent and any other relative by blood, marriage, adoption, domestic partnership, or legal guardianship.
Can my grandparents gift me a cash down payment for a home?
Yes, home buyers can receive cash gifts for down payment from a grandparent or any other relative by blood, marriage, adoption, domestic partnership, or legal guardianship.
Can my girlfriend or boyfriend gift me a down payment for a home?
Yes, home buyers can receive a down payment gift from a girlfriend or a boyfriend, but at the lender’s discretion. Home buyers should expect to document their relationship with a paper trail or photographs.
Can my fiancé(e) give me a gift down payment for our future home?
Yes, home buyers can receive cash gifts from a fiancé(e) to be used for the purchase of a home. Lenders may request evidence of an engagement to document the relationship.
Can the seller gift me cash for a down payment on a home?
No, home buyers cannot accept cash from the home seller to use for a down payment.
Who can gift me money for a mortgage down payment?
You can receive a cash gift from just about anybody for use as down payment on a home. The notable exceptions are: your real estate agent, the seller’s real estate agent, your mortgage lender, the seller of the home, and anyone else who gets paid because you’ve purchased a home.
How much money can be gifted for a down payment?
There is no limit to how much money a home buyer can receive as a gift for down payment.
How long does a cash down payment gift have to be in my bank account?
There is no specific requirement for how long gift money must be in a home buyer’s bank account before closing on a home. Gift money that’s in a bank account for less than 60 days before a closing may be subject to additional paper trail.
Can I get a cash gift for down payment “at the last minute”?
Yes, you can get a last-minute cash gift for down payment on a home. With last-minute cash gifts, to alleviate timing issues, it’s best to send the money via wire transfer to your closing in advance, with reference to the buyer and the property.
Can a home buyer get a loan for a down payment?
No, as a general rule, home buyers cannot borrow money and use it for a down payment. This includes borrowing money from a family member or friend; from a credit card; and, from a non-profit organization. Borrowing from a 401(k) plan to make a down payment is allowed.
What does a good mortgage gift letter look like?
A proper mortgage gift letter includes the following:
- The gift giver’s name, address, and contact information
- The home buyer’s name and relationship to the donor
- The dollar amount and approximate date of the gift
- A statement that the gift requires no repayment whatsoever
- Signatures of the gift giver(s) and the home buyer
Can I apply my real estate agent’s commission as a cash gift for down payment?
No, home buyers may not use their real estate agent’s commission as a cash gift for down payment on a home.
Do I have to pay taxes on a cash down payment gift?
According to U.S. tax code, the giver of a cash gift for down payment pays the related taxes, when applicable. The receiver of the gift pays no taxes on the gift whatsoever. As with all tax questions, though, consult with your accountant for relevant, personalized advice.
How do I document a cash down payment gift for a house?
To document a down payment gift for a home, do these three things:
- Write a mortgage down payment gift letter that includes a dollar figure
- Provide a copy of the gift giver’s check or withdrawal slip for same dollar figure
- Show the gift recipient’s deposit slip with the same dollar figure
Then, deliver each of the above to your mortgage lender by hand or digitally — whichever is easier.
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