A down payment can be all that stands between you and your home. With 100 percent financing a rarity, you have to come up with anywhere from 3 to 100 percent of the purchase price. This can be a hefty sum. If you’re fortunate enough to have someone, typically a family member, willing to help you out, you can receive part or all of the down payment as a gift.
Type of Loan
The amount of your down payment that can be gifted depends on the type of loan you’re getting. Unless the gift you’re getting will be at least 20 percent of the home’s value, many lenders will require you to provide at least a 5 percent down payment from your own funds. For example, if you're buying a $200,000 home, you will have to put down at least $10,000 of your own money. Any gifts you receive just add on to that down payment. Government-insured FHA loans, on the other hand, allow a third party to gift 100 percent of the down payment.
Source of Gift
The lender will request a bank statement from the giver showing that he has the funds already in account. It does not want to see that your parent or other relative is getting a loan or an advance on a credit card to pay your down payment, because the lender would look upon this as essentially 100 percent financing.
In addition to proof that your relative has the funds on hand, the lender also requires a gift letter. This document is signed by the giver and acknowledged by you as the recipient. It should specify the dollar amount that will be gifted and the giver’s relationship to you. The lender wants to ensure that the money isn’t coming from anyone with an interest in selling the property. The letter should clearly state that the money is a gift and that the giver does not expect any type of repayment, interest-free or otherwise.
As the recipient of the gift, your concern is the mortgage payments. The giver, on the other hand, has tax considerations to take into account. As of 2013, each parent is allowed to gift each of his or her children $14,000 tax-free each year. Any gift beyond that amount can still be given tax-free assuming the giver is under his $5,120,000 lifetime gift tax exemption. In either case, the giver will still have to report the amount of the gift greater than $14,000.
Carl Carabelli has been writing in various capacities for more than 15 years. He has utilized his creative writing skills to enhance his other ventures such as financial analysis, copywriting and contributing various articles and opinion pieces. Carabelli earned a bachelor's degree in communications from Seton Hall and has worked in banking, notably commercial lending, since 2001.