It’s the time of the season for giving and that applies to helping a loved one buy a home by giving a gift of money for down payment. Borrowers have more options if they have a donor willing to help out, but gifting money does have its own guidelines.
Most loan programs for owner occupied residences allow for some or all down payment funds to come as a gift from a qualified donor. Qualified donors typically include a family member, domestic partner or employer. Generally the same guidelines are true for ‘second homes’ (secondary properties that are for the sole use of the owner and not rented out to others for income) but not for investment property transactions.
The most popular loan programs such as FHA, Fannie Mae, Freddie Mac and VA all have provisions allowing for gift funds to be used and many jumbo/portfolio loans offer the same flexibility. Gift funds can be used on these programs for some or all of the down payment required in addition to closing costs.
Some loan programs require ‘reserves’ (additional amounts required to be verified and held by borrower in their personal bank account after closing) which a gift can satisfy as well.
There are loan programs that require a ‘minimum borrower contribution’ that determines how much of the down payment and/or closings costs must come from the borrowers individual seasoned funds in addition to those allowable to come in as a gift.
The key here is that even if you’re a borrower with no savings or limited down payment there are ways to get help and get in the game faster. Here at NGG Mortgage we’re experts on all programs and guidelines and will be able to help identify which are the best fit for your individual circumstances.
Donor guidelines can vary based on loan program yet some requirements are fairly common. In almost all cases a ‘gift letter’ will be required to allow gift funds to come to the transaction. A typical gift letter states the name of the donor, receiver, amount of gift, and a statement that no repayment is required to confirm that there is no loan applicable.
Many loans will require the donor to additionally provide bank statements and other documentation to source the gift funds and demonstrate ability to give a gift. Donors often have concerns about the tax consequences of giving a gift which may require them to consult with their attorney, CPA or other resource to provide guidance. It is very important that borrowers take the time to explain requirements to the donor upfront to ensure no difficulties getting their personal documentation when needed during the course of a transaction.