A Down Payment – The Perfect Holiday Gift

So many of us are starting to think (or already have a closet full) of Christmas presents that we’re going to buy and give to our closest friends and family this year. But what about a down payment? Sure, it may not be exactly your most traditional holiday present, but the idea of gifting a down payment is nothing new; and it’s something we as mortgage brokers get asked about all the time. That’s because there are some very specific rules to gifting and receiving the gift of a down payment.
The first rule of down payment gifts is that they can only come from family members, or in most cases anyway. While some situations may allow for a close friend to provide the down payment, generally it must be a family member, and it’s only in the most extenuating of circumstances that allow for anyone else to gift the funds. If the person providing the gift is not a family member, a lot of documentation and verification is generally required to provide proof of a long, close friendship.
Second, regardless of who is providing the funds for the down payment, it must be a gift. This means that you cannot make arrangements to pay back the down payment at any time, nor can it be a loan of any kind. If someone wants to give the generous gift of a down payment, it must just be that, and nothing more. Lenders are such sticklers about this point in fact, that they will provide you with a gift letter. Within this letter, it must be stated that the funds are being given as a gift, as well as the relationship of the person to you.
Also in this gift letter will be included the amount of the property, the amount of the down payment, and the address of the property. In many cases, the person providing the gift must also show proof that they have the ability to pay the down payment, whether that be in the form of bank statements, bonds, or stock documentation.
Getting the gift of a down payment is being on the receiving end of an incredibly generous gesture. But, it’s more than a simple matter of “I’ll just give you the money.” Documentation is required and there are some very specific rules you must follow in order to get that gift.