It’s not uncommon for home buyers to receive gift funds from their parents or other family members to help them buy their first home. You can use gift funds for a down payment and closing costs, but it depends on the mortgage loan program and the total down payment.

Just be aware that any gift funds you receive have to “season” in your account for at least 60 days before they’re considered to be your money. For example, if you received $8,000 in wedding gift funds on August 31, these funds would need to sit in your account for September and October before they would be considered to be your money in November. After November, you could apply for a home loan and use these funds for a down payment.

However, you should talk to your mortgage broker or lender about your particular loan program. Some programs may require you to have at least 5% of the new home purchase price in your own money in your account, besides the gift funds, for at least 60 days.

Different lenders have different requirements to verify gift funds, so make sure you follow the underwriter’s rules. Typically the underwriter will want to see:

• A letter from the person providing the gift that states: their name, address and telephone number; the relationship between them and you; the exact dollar amount of the gift; the date the funds were transferred; the address of the property being purchased; and a statement saying that the money is a gift and not a loan that needs to be repaid. The letter must be signed and dated.
• An account statement from the person giving the funds that shows he/she had sufficient funds in his/her account to cover the gift. This is to ensure that you’re not trying to hide a loan that you’ve receive from a third person that was transferred through the donor’s account in order to make it look like a gift.
• A copy of the donor’s check.
• A copy of your bank statement that shows you received the funds before closing.

So just be prepared to provide all of this documentation to your mortgage broker/lender. Also, make sure each transaction is for the exact amount of the gift.

But there is simpler way for someone to provide gift funds that will be used for a down payment. The donor can just deposit the money directly into your escrow account. The donor would still need to provide the gift letter, but he/she would add a statement saying that ”the money will be wired directly to escrow at the time of closing.” A couple of days before your closing, you can get the wiring instructions from your escrow agent that you, in turn, provide to your gift donor. Then he/she can wire the money to your escrow company. This process can streamline the necessary paper trail.

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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