It’s not uncommon for first time homebuyers to have a little help from a family member for their down payment. While down payment requirements are generally pretty low (as low as 3.5%), the costs of buying a home can add up fast when coupled with settlement fees and taxes. As a result, it’s not uncommon for family members to give a little extra cash around the holidays, or newlyweds to use gifts from their wedding.
If you’re using gift money for all or part of your down payment, the donor will be asked to write a letter to the mortgage company explaining the gift. Most importantly, the donor must clearly state that the gift is not a loan, and therefore not expected to be repaid. In general, any large deposit will need to be verified while you’re in the process of securing a mortgage. You won’t need a donor letter from a $50 gift from your Uncle Harry, for example, but you’ll need to explain the $8,000 check from your father.
One of the most important things to consider is the type of loan that you’ll be using. FHA loans and Conventional loans have different policies and regulations regarding gifts. Typically, FHA loans allow all of the down payment to be a gift (as long as you meet certain credit requirements). If you’re securing a Conventional loan, your entire down payment can be a gift as long as you put 20% down. If you are using a Conventional loan but putting down less than 20%, you will be expected to contribute some of your own funds, too. Be sure to speak with your lender about these specific policies, as each situation is a bit different.