If your family has the ability to gift you money to use towards the down payment on your home purchase, we need to make sure that it complies with certain rules.
Here are some highlights and tips you should be aware of:
CONVENTIONAL LOANS:
- If your total down payment is less than 20%, then 5% of the down payment must come from your own funds. If your family is able to help you with the full 20% (or more), then it can all be a gift.
- The gift must come from a relative, domestic partner or fiancée. The donor must sign a gift letter stating that the gift is made out of love and affection with no obligation of repayment. We will have to track the funds as well, so your family must be willing to cooperate in this regard.
- If you do not have 5% of your own funds, and if your family is unable to gift 20%, then we can always “season” the funds. What this means is that you deposit the gift ahead of time into your bank account. Once it’s sitting in there for 2 months, it is your money and is therefore considered seasoned. Just remember that you would have to wait 2 months before you put an offer on a home.
FHA LOANS:
FHA is a lot more lenient in its gift rules. Any and all of the down payment can come as a gift from a relative, domestic partner or fiancée, so we would not have to jump through as many hoops.
Hi Irene,
Can you tell me what the purpose of the tracking is and for how long this tracking has to continue?
Rob
Hi Rob, thank you for your question! The purpose of tracking is so the lender can see that the funds are indeed coming from the same person that signed the gift letter. Any time there is a large deposit in one’s bank account, we need to show where it came from, from whom, and for what reason. Their reason is to make sure that the borrower is not receiving a loan from elsewhere and is not disclosing that loan or payments in their debt-to-income ratio. I hope this answers your question.