Using Gift Funds to Buy a Home

Buying a home is a joyous occasion. In fact, for some homebuyers, a family member might be inclined to celebrate the accomplishment by gifting a sum of money to assist with the purchase. Some home purchases are only possible through said gift funds – whether it be a wedding, graduation, or “just because” gift. If you are thinking of using gift funds to purchase a home, the Evolve Bank & Trust mortgage experts have outlined some helpful things to know beforehand.  

When using gift funds for a down payment, it is important to note that your lending bank will be interested in the source of the funds. Generally, lenders will follow up on any gifts equal to over half your total monthly income. For anyone with a total monthly income of $3,000 any gift over $1,500 would need further explanation.  

A gift letter should be submitted for any gift funds involved in the purchase of a home. These letters include the full details of the gift, including both parties’ names and signatures. This letter is meant to verify that the person giving the funds does not intend to be repaid. In some cases, the lender will follow up with the person gifting the funds with additional questions.  

Depending on the type of loan, there may be certain restrictions on who may gift funds to the homebuyer. In most cases a family member is acceptable, but in each case a family member is defined differently. For instance, with conventional loans, all family members including cousins, nieces, and godparents are acceptable. However, with FHA loans the definitions of family members for gifts are stricter and does not include even cousins, nieces, or nephews.  

When preparing to use gift funds, be sure to document your funds through a gift letter and verify your source is acceptable within the guidelines of your particular loan. For more homebuyer resources, visit the Evolve Homebuyer Resource Center

These are general guidelines, please consult a home loan advisor and legal consul for specific advice.