Can you use gift money for a home purchase?

Here are the facts: 70% of renters said that saving for a down payment was what was hindering them from buying a home. That’s a pretty high number! I get it, it’s not easy to save — let alone trying to save when you’re living paycheck to paycheck. (but doable! Check out this video for more tips on how actually save)

So today, I thought it would be a good idea to throw it back to a very old video I did about gifts. And specifically, the money gifted to you for the purpose of buying a home. IT IS possible to compliment your hard-earned and saved money, you are allowed to use a financial gift from family (or family-like member) towards your home purchase. A financial gift can be used for all of the down payment, closing costs, or partial down payment — but there are a few key things to keep in mind for this money to be applied toward your home.

Here’s what’s important…

1. The Relationship with your donor

Did you stop and think to yourself “family-like member??” when reading the paragraphs above? I did too. I’ll start out by saying that the easiest way to receive a gift for your home is from a true family member. The relationship needs to be documentable. (sorry, not via social media) If it’s a “family-like member” we need to be able to show a paper trail that this person has been a family-like figure in your life. (ie: has lived with you and your family) As I’m trying to come up with other scenarios than “has lived with you and your family”… I’m feeling the need to stress that these types of relationships that qualify for this type of gift are few and far between. Again, the easiest way to go is a gift from an actual verifiable family member.

2. The moving of funds

When this family member agrees to give you the money, one of three things can happen to receive the funds:

– A transfer (withdrawal) from their account into your account
– A cashiers check (withdrawal) from their account into your account.
– Or a wire transfer/cashier’s deposit (withdrawal) directly from their account to title.

???? Pro tip: to eliminate any friction when thanking your donors for their generosity, be sure to them know upfront that copies of the following item(s) may be requested:

– Their bank statement
– Letter from bank
– Transaction history

3. The gift letter

Often times people will draft some kind of “for whom it may concern” letter when sending funds, but it is actually a standardized form that your loan officer should give you to fill out. As well as including important items such as the name of donor, relationship, amount, bank account, institution/account #, etc — this letter also discloses that this gift can not be a loan.

It is very important that these funds are given as a gift, where there is no requirement to repay the money.

4. The amount promised and the amount received

Part of the process will include asking the person who is giving the gift to write a letter that declares the amount of the gift. A gift amount has to be in the exact amount as stated in the gift letter. Sometimes you might not end up needing the entire amount promised, but since it is documented from that letter, that is still the amount that needs to be exchanged. For example, if after everything you end up only needing $1,500 towards your home, when your donor promised your $2,000 — they still have to give you the $2,000 because it will have already been documented that way.

Saving up for a down payment can be really daunting- I totally get it. But if you’re fortunate enough to have a family member who is sharing their generosity with you, there are absolutely ways to make it work. If you have questions on this topic (and I totally get it if you do! It can be confusing!!) please don’t hesitate to get in touch. Even if I’m not the one helping with your home loan, I’m happy to answer questions. What other questions do you have about gifts and how you can apply them towards your home purchase? Let me know in the comments below!