Making a down payment can be an important part of buying a home with a mortgage. This upfront payment toward the home purchase shows the lender you have resources and reduces the amount of the loan you have to take out and repay.
But saving for a down payment can take a long time or feel impossible for some people. It could present a major barrier to home ownership.
If you’re ready to buy a home and just need a hand to get over this first hurdle, consider your option for using gift funds to make your down payment.
What Are Gift Funds?
Gift funds are any money given to you by someone else for the purpose such as paying closing costs or making a down payment . They’re a gift as they will not be repaid.
Gift funds mayhelp you get a mortgage with better terms than you might be able to get on your own. They could help you put down a larger down payment, so you’ll take out a smaller loan and possibly secure better terms.
When you use gift funds for your down payment, you need to show the lender it’s not a loan. If it were a loan, even from a friend or family member, that’s considered a debt you have to repay which may make it harder for you to repay the mortgage.
Depending on the lender, you may be able to prove to a lender that your funds are a gift and not a loan by submitting a gift letter.
What Is a Gift Letter for Mortgage?
Depending on the lender, if the gift funds are given to you within 60 days of applying for a mortgage, you’ll need to provide your lender with a gift letter. A gift letter for a mortgage is usually a statement from the person who gives you the gift funds that says they’re a gift and not a loan. The gift donor writes and signs the letter and includes their contact information. You submit the letter along with your mortgage application to ensure your lender these funds aren’t debt you have to repay. Ask your lender for their requirements in regards to gifts and gift letters.
A gift letter may include:
- Gift Donor’s name, address, phone number and relationship to you.
- Your name and the address of the home you’re buying.
- Amount of the gift.
- Date you received the gift.
- A statement that the funds are given to you as a gift from a qualified family member and that it doesn’t have to be repaid.
- Your signature and date.
- The gifter’s signature and date.
Along with a gift letter, some lenders also ask for additional verification. For example, the gifter might need to provide bank statements that show the money was in their account before they sent it to you.
How to Use Gift Funds for a Mortgage
In most cases, gift funds can only be used toward your mortgage when they’re from immediate family members. Immediate family may include a spouse, partner or fiancé; children; parents’ siblings and cousins; your siblings and their kids; grandparents and great-grandparents; step-family, in-laws and adoptive family members.
Government-backed loans, such as FHA, VA, and USDA, allow gift funds from some non-family members, as well. Some lenders restrict you from using gift funds you receive from anyone with an interest in selling the home, like a real estate agent or the seller.
Not all lenders accept applicants using gift funds toward their mortgage, and there are some that do limit the amount or proportion of gift funds you can use. But at Quontic, we’re enthusiastic about helping you achieve homeownership and accept gift funds.
To get started on applying for a mortgage with gift funds, visit our Community Development Loans1 page to see if you prequalify or request to speak with a mortgage specialist to learn more about loans for non-traditional borrowers.
This is not financial advice, nor should it constitute or be construed as instruction for any individual reader, or group of readers, to act or make a decision in any financial capacity. Seeking independent, professional consultation from a qualified and licensed expert is always the optimum avenue in making financial decisions.
1All lending products are subject to approval. Rates, program terms & conditions are subject to change without notice. Not all products are available in all states or for all amounts. This does not represent an offer to enter into a loan agreement. Other requirements, restrictions & limitations apply. Information is accurate as of November 2, 2022 & is subject to change without notice.