Gift Funds Used for the Down Payment - What are the Rules?

By
Mortgage and Lending with The Mortgage Experts at America's Mortgage, a Division of Cherry Creek Mortgage Co. NMLS #241555
http://actvra.in/yhN

If a borrower does not have enough money to pay for the required down payment, it is permissible to have a relative give the borrower the money for the down payment.

With an FHA loan, the entire down payment amount can come from a relative.  The gift donor must sign a letter stating that the funds do not have to be paid back.  The donor must be able to show that they are able to provide the funds (a bank statement showing the money has not just recently been deposited into their account is sufficient), and the borrower must show receipt of the funds (a bank statement or deposit ticket is needed).

With a conventional loan, the rules are slightly different.  A relative can give a gift to the borrower for the down payment, but the borrower must contribute the minimum required down payment themselves (usually 5%).  The exception to this is if the gift is for at least 20% of the purchase price.  Then, the relative can give the borrower the entire down payment and the borrower doesn't have to contribute any money at all.  The documentation requirements are slightly different, too.  The donor does not have to show that they are able to afford the gift - they just need to show that they have given it to the borrower.  The borrower still needs to show that they have received the gift, and the gift letter still needs to be signed.

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Anonymous
Manda

I am going to b on the mortgage title but not on the loan. I am his fiance and putting 20% + down so he will qualify on his own.. are there tax complications fr me in gifting the 20% down payment?

Jul 01, 2014 09:49 AM #133
Anonymous
Dee

What are the tax implications of parents providing a gift of 30K for a down payment? We are putting down 5% but want to put in 10%.

Jul 08, 2014 11:23 AM #136
Rainmaker
128,757
Chris Thomas
The Mortgage Experts at America's Mortgage, a Division of Cherry Creek Mortgage Co. - Denver, CO

Manda - you will need to contact an accountant or tax lawyer to get tax advice.

Jul 10, 2014 11:46 AM #137
Rainmaker
128,757
Chris Thomas
The Mortgage Experts at America's Mortgage, a Division of Cherry Creek Mortgage Co. - Denver, CO

Dee - you should talk to your accountant or a tax attorney for tax advice.  Lenders are not allowed to help you with that.

Jul 10, 2014 11:47 AM #138
Anonymous
Stephen

My parents are helping me with a %5 down payment. They have already provided the gift letter. They will also be providing me with funds for the escrow and cash reserve. Is this going to be a problem? So far we are going with a conventional loan, but would it be better to do this with FHA?

Jul 22, 2014 08:24 PM #139
Anonymous
davidson

My name Davidson Thompson, i am from California USA, married, i have been searching for a genuine loan company for the past 5 years and all i got was bunch of scams who made me to trust them and at the end of the day, the took all my money and left me moneyless, all my hope was lost, i got confused and frustrated, i lost my job and find it very difficult to feed my family, i never wanted to do anything will loan companies on net anymore, so went to borrow some money from a friend, i told him all that happened and he said he can help me, that he knows a loan company that can help me, that he just got a loan from them, he directed me on how to apply for the loan, i did as he told me, i applied, i never believed but i tried and to my surprise i got the loan in 24 hours, i could not believe my eyes, i am happy and rich today and i am thanking God that such loan companies like this still exist upon this fraud stars all over the places, please i will advise everyone out there who are in need of loan to go for Mr.james luis By Email ( scottloancompany10@gmail.com they will never fails, your life shall change as mine did.

Jul 26, 2014 04:12 AM #140
Anonymous
theresa

A friend of mine wired me a transfer of 50K and it it was supposed to be a gift towards a down payment for the purchase of a house,my husband and i were so excited about this amazing opportunity,after having this $in my account for aprox 2 months and prior to the closing date,my friend tells me that she talked to her accountant and he advised her to get the money back from me and not declare as a gift….but its been already given!!!and put towards the D payment,so what am i supposed to do now,with out my friend's help my husband and i would not be able to make this purchase

Jul 28, 2014 08:26 PM #141
Rainmaker
128,757
Chris Thomas
The Mortgage Experts at America's Mortgage, a Division of Cherry Creek Mortgage Co. - Denver, CO

Theresa - this is why you are only allowed to get gifts from relatives.  Sometimes friends are jerks, unlike relatives, who are never jerks.

Seriously, you should probably decide whether you want to buy the house, lose your friend, and possibly face a law suit when they try to get the money back from you, or buy another house that you can afford without anyone else's help.

Chris

Jul 29, 2014 11:00 AM #142
Anonymous
Mark

Hi Chris,

We want to get a portion of the down payment as a gift from a relative. Is there any tax on the amount of the gift funds for the donor?

Jul 30, 2014 12:27 PM #143
Rainmaker
128,757
Chris Thomas
The Mortgage Experts at America's Mortgage, a Division of Cherry Creek Mortgage Co. - Denver, CO

Mark - you will need to talk to a CPA or a tax attorney about tax liability.  Never trust a lender when it comes to taxes.  

Chris

Jul 30, 2014 12:48 PM #144
Anonymous
Joe

I live in Texas and I am married. I want to buy a home with 5% down and get a conventional loan. My wife is not on the loan. We have separate bank accounts. Is it a gift if my WIFE gives me the 5% from her bank account? The lender is telling me it is, even though we are married and in Texas she has to be on title.

Aug 01, 2014 11:33 AM #145
Rainmaker
128,757
Chris Thomas
The Mortgage Experts at America's Mortgage, a Division of Cherry Creek Mortgage Co. - Denver, CO

Joe - if she is not going to be on the note, then I believe it would be considered a gift.  In Colorado, it would be considered a gift because CO is not a community property state.  I am not sure of the rules for TX.

Chris

Aug 01, 2014 11:47 AM #146
Anonymous
Al Makke

Hi Chris,

I'm buying a house from my dad.
My dad wants to sell it for 100K. To help me with the down payment, we decided that he sets the price of the house to 125K, and then he will give me 20% (25K as a gift of equity). Right now, the house is solely in his name.

For tax reasons, we decided that he would give me only 14K as a gift of equity, and my mother would give me 11K as a gift in cash.
The bank account in which my mom will give me 11K from is in both their names. And the check books are also in both their names. So they decided that they would give me a money order in my mother's name only. This way the gifts from each are under the 14K/spouse/year limit.

Does this work?
Thanks,
Al

Aug 10, 2014 06:31 PM #147
Rainmaker
128,757
Chris Thomas
The Mortgage Experts at America's Mortgage, a Division of Cherry Creek Mortgage Co. - Denver, CO

Al - No, you cannot get a gift the way you propose.  When you get a money order, you need to show where the money came from to buy the money order. If this is going to be your primary residence, then you only need 5% down, so just get a smaller gift.

Chris

Aug 11, 2014 07:06 AM #148
Anonymous
CoryT

Hello Chris,

Are there any particular requirements if a gift is sourced from out of the country (aside from the obvious difficulty of getting the check in the mail)? My wife was born overseas where her parents still live. They are providing us with a gift.

May thanks,
Cory

Aug 21, 2014 02:30 PM #149
Rainmaker
128,757
Chris Thomas
The Mortgage Experts at America's Mortgage, a Division of Cherry Creek Mortgage Co. - Denver, CO

Cory - The only additional requirement would be that the bank statement showing that the donor has the funds for the gift must be translated into English by the bank (you can't do it yourself or have someone other than the bank do it), and the money must be shown in US dollars.  The bank will be able to do that for you - might take a while, but they can do it.

Chris

Aug 21, 2014 03:35 PM #150
Anonymous
Vanessa

Hello Chris,

I purchased a home from my father for less than the home was worth by about $190,000 dollars. He signed a gift of equity loan and had/has no intention of me paying him back, as he lives with me. The house is now solely in my name.

He then wanted to buy a vacation property and asked me to sign a letter stating that his original gift of equity was actually a loan and that I was going to pay him back. This was required by his mortgage company.

He told me that the second letter didn't mean anything. That it was just for him to get his mortgage for the vacation property.

How legally binding are these letters? Could he turn around one day and sue me for the equity because of the second letter? Could he force me to pay him back?

Feb 02, 2015 10:35 AM #151
Anonymous
Laura

Hi Chris,
My daughter if trying to buy a condo which isn't fha approved so she has to do a conventional loan. Her fiance is providing the $10k deposit and will also reside in the house but due to his credit, won't be on the loan. We're told she still has to have 5% of the down payment from her own funds. If she put her name on his stock account too, would his $10k be considered the 5% deposit she needs to contribute? Thanks,

Feb 02, 2015 11:18 AM #152
Rainmaker
128,757
Chris Thomas
The Mortgage Experts at America's Mortgage, a Division of Cherry Creek Mortgage Co. - Denver, CO

Vanessa,

I can't give you legal advice because I'm not an attorney, but you and your father should realize that making up phony letters to get a mortgage is considered loan fraud.

Chris

Feb 03, 2015 08:51 AM #153
Rainmaker
128,757
Chris Thomas
The Mortgage Experts at America's Mortgage, a Division of Cherry Creek Mortgage Co. - Denver, CO

Laura,

If the loan is going to be sold to Freddie Mac, the borrower does not need 5% of their own funds.  That is only a Fannie Mae rule.  Ask the lender if they can sell loans to Freddie Mac.  Also ask the lender about the stock account.  Many lenders have underwriting overlays - underwriting guidelines that are in addition to the Fannie and Freddie guidelines.  I don't know what the lender's guidelines are, so I can't answer your question.  

Chris

Feb 03, 2015 08:58 AM #154
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