Gifts often come into play when you are buying a home so I wanted to provide some guidance on what’s allowed and what the process is for documenting them. To provide a framework for understanding these rules, I thought I’d provide some of the big picture ideas that govern gifts:
- For the most part, gifts are an acceptable source for all loan programs and may cover up to 100% of your down-payment and closing costs (There are a few special cases where gifts may not be used but those are the outliers.)
- A gift may only be received from a linear family member – Parent, Grandparent, Aunt or Uncle, Brother or Sister, or Domestic Partner (Again, there are a few special exceptions to this rule but the exceptions are rare)
- The person giving the gift (the ‘donor’) has to actually have the ability to give the gift meaning they have to have the money in an account and show it leaving that account
- We have to show that you actually received the gift
- Cash is never (Never!) an acceptable gift source
Here’s the Step-by-Step process for documenting gift funds:
- A Gift Letter must be completed, signed, and dated. For Conventional, VA, and USDA Loans, use this form (Gift Letter for Conventional, VA, and USDA). For FHA Loans, use this form (Gift Letter for FHA Loans)
- The Donor will provide a check payable to the recipient (I recommend either a Cashier’s Check or wiring the finds)
- If using a regular check, I will need a copy of the cancelled check once it clears the Donor’s account.
- If using a Cashier’s check, I will need a copy of the check
- If wiring, I will need a copy of the wire authorization
- The Donor will need to prove that the funds were withdrawn from their account. That means that we’ll need a copy of their bank statement showing the check clearing or withdrawal for a Cashier’s Check or wire. A couple of points:
- If there’s enough time, the Donor’s regularly issued bank statement showing the withdrawal may be used.
- If you need/want to provide a statement sooner, the Donor may request an “Interim” statement for the most recent 30-days. In this case, each page of the Interim statement must be signed, stamped, and dated by the teller who produced the statement.
- If there are any large deposits in the Donor’s statement, these will need to be documented. What this means is that, if the Donor transfers/deposits funds from another source in order to make the gift, we need to see the account from which the transfer emanated or deposited item came from. NOTE: A cash deposit into the Donor’s account will NEVER be acceptable.
- The Recipient will need to deposit the gift into their account and provide their bank statement showing the funds in their account.
- If there’s enough time, the Recipient’s regularly issued bank statement showing the gift funds deposit may be used.
- If you need/want to provide a statement sooner, the Recipient may request an “Interim” statement for the most recent 30-days. In this case, each page of the Interim statement must be signed, stamped, and dated by the teller who produced the statement.
- NOTE: If there are any other large deposits in the Recipient’s statement, these will need to be documented.
Here’s a handy checklist to help you make sure that you have all of the pieces needed (download here)