Using Gift Money with a Conventional Loan:

Most conventional mortgage loans allow homebuyers to use gift money for their down payment and closing costs as long as it’s a gift from an acceptable source, such as family members. Fannie Mae and Freddie Mac define family as the following:

• Parent
• Children (including adopted, step and foster children)
• Sibling (including adopted, step and foster sibling)
• Grandparent (including great-grandparents, step and foster grandparents)
• Aunt and uncle (including great, step and foster aunt or uncle)
• Niece or nephew (including step-niece or nephew)
• Cousins (including adopted and step-cousins)
• In-laws (including parents and grandparents, aunt, uncle, brother- and sister-in-law)
• Domestic partner
• Fiancé

Using Gift Money with an FHA Loan:

The Federal Housing Administration offers the FHA loan for borrowers with low-to-moderate income levels. If you apply for an FHA loan, your gift funds must be from family or another eligible donor. Cousins, nieces and nephews are not able to offer gift money under standard family guidelines.

The FHA also allows gifts from your employer, a labor union or from charitable organizations. You can also use funds from government agencies or public entities that provide assistance to low-to-moderate income or first-time homebuyers. Mortgage-World.com goes down to a 500 minimum credit score on FHA loans.

Using Gift Money with VA Loans:

The Department of Veterans’ Affairs offers zero-down mortgage options for military veterans in certain circumstances. There are few restrictions on who can give you a gift toward your home purchase, but there is one major stipulation: the gift cannot be from someone who is an interested party.

An interested party would be someone who has a role in your transaction, such as a builder or developer, another broker, a real estate agent or the seller. Aside from that, you can use gift money for your down payment with a VA loan.

What is a gift letter?

A gift letter needs to be from the person who gave you the funds, and they need to include information showing the gift doesn’t need to be paid back. Lenders typically provide a standard gift letter for you and the donor to complete, but have the donor prepare to include the following details in the letter:

• Their names(s) and contact information
• Their relationship to you
• The address of the home you’re planning to buy
• The exact amount of the gift
• Their bank and account information to show where the money is coming from
• The date they gave you the gift money or the date they will transfer the funds
• A statement that reiterates that the money is a gift and doesn’t have to be repaid
• Their printed name(s) and signature(s)

Along with the gift letter, you may need to provide additional information from the person who gave you the gift, your lender will let you know what additional information you need to provide.

Are there limits on gift amounts?

Usually, there aren’t any limits on the amount of money someone can give you toward your mortgage down payment. However, you may be required to pay a portion of your down payment from your personal funds depending on the property type and the amount you put down. For instance, if you’re purchasing an investment property you may need to use your own funds for the down payment.

Primary residence

If the property you’re purchasing is a primary residence, you can use your gift for all or part of the down payment. In some cases, you may need to contribute some of your own funds in addition to the gift.

Second homes

FHA and VA loan options aren’t available to buyers purchasing a second home. Also, there are several guidelines for the gift amount with a conventional loan. In some cases, you may need to contribute some of your own funds in addition to the gift.

Advantages of using gift money for your down payment

One of the biggest advantages of receiving down payment gift money is that you’ll be able to put down a larger amount than you would have without it. This could mean buying a more expensive home or reducing the total amount you’re financing.

Another great advantage of using gift money to help with your home purchase is that it can help you come up with a down payment more quickly which can put you one step closer to buying a home.

To learn more about how gift money works, or to discuss low down payment programs, contact a Mortgage-World.com Loan Officer.

Written by: Julia Luis, Loan Officer for Mortgage-World.com, LLC

Julia Luis covers mortgages and the housing market. Before joining Mortgage-World.com, she was a college student at the University of Miami.