Rules for Gift Money
Did you know that you can receive gift money from a relative to pay for all of your down payment and closing costs? The rules are simple.
Here’s what you need to know.
If you are buying a 1, 2, 3, or 4-unit primary residence or second home, and you are putting 20% or more down, none of the money for the down payment or closing costs must be from your own funds. It can all come from a gift from a relative.
If you are buying a one-unit primary residence and you are putting less than 20% down, all of the money for the down payment and closing costs can come from a gift from a relative.
If you are buying a 2- to 4-unit primary residence or second home and you are putting less than 20% down, then 5% of the money for the down payment must come from your own funds. However, the rest of the money for any remaining down payment and the closing costs can come from a gift from a relative.
As houses become more expensive, gift money for all or some of the down payment and closing costs is becoming more common. It’s easy to do and the documentation requirements are simple. We just have to show that the donor has the money to give you (a bank statement from the donor is all we need), and we need to show that the money has been transferred to you (again, a bank statement showing the deposit is fine). We also need a gift letter signed by you and the donor, stating that the money does not have to be repaid. That’s it!
If you have questions about down payments, closing costs, gift money, or anything else related to mortgages, just contact us and we’ll tell you the rules.