Have you recently received funds from your parents or a family member as a gift to help you put a down payment on a new home? If so, you need to know how to handle those funds properly. Mortgage lenders closely scrutinize all cash gifts since they want to ensure that any money that suddenly pops up in your bank account isn’t another loan against the home they’re giving you a mortgage on. Therefore, you’ll want to follow these tips to make sure the cash gift is properly given and received. Otherwise, your mortgage lender may reject your home loan application.

Donor steps:

1. Talk to an accountant about federal gift tax regulations, so you know what your liabilities will be.
2. Write the check for the exact amount that you’re giving for the down payment. Don’t include extra funds for other purchases, like appliances, furniture, etc. And don’t give the gift in cash.
3. Keep a proper paper trail, including copies of the front and back of the processed check and bank statements. If you cashed in stock or took money out of a money market or other fund, you will also need paperwork of the stock sale or fund transfer. The lender wants to see that you had the funds to give and that the money wasn’t from a loan that was transferred through your account.
4. Provide a gift letter. This letter should state that the money is a gift and not a loan the receiver must repay. Also, the letter should include your name, address and phone number; your relationship to the recipient; the exact dollar amount of the gift; the date the money was transferred to the recipient; and the address of the property the recipient is purchasing. The letter must be signed and dated by both parties.

Receiver steps:

1. Talk to a mortgage lender or broker, like Grandview Lending, about your particular loan program’s down payment requirements. Different loan programs require you to contribute a certain percentage of money as a down payment. So you want to know what that figure is.
2. Talk to your accountant about any tax implications from receiving the gift funds.
3. Receive any gift funds from a close relative – and not a friend, colleague or distant relative.
4. Physically deposit the check into your bank account. Don’t make the deposit online or at an ATM. Only deposit that check – not multiple checks or cash. Your bank receipt must match the exact amount listed in the gift letter. (If the deposit and gift letter are off by even one penny, the lender may reject your letter and gift funds.) Collect a receipt of your deposit. Also put the money into one account that you will be drawing the funds from when you make your down payment.
5. Keep a proper paper trail of all the transactions, including copies of the front and back of the processed check and a bank statement that shows the receipt of the funds into your account.
6. Obtain the gift letter from the donor.
7. Season the money in your account for at least 60 days before applying for a home loan and using the money for a down payment.

If you’re looking to buy a new home, contact the experienced mortgage specialists at Grandview Lending. They can guide you through Grandview’s fifteen-step loan process – making it easier for you.

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