Gifting money as a down payment

Many first-time homebuyers receive downpayment assistance from a family member or close friend, but many don't realize there are specific guidelines they must follow for a home purchase to avoid trouble down the road.

---

First off, the down payment must be a gift. If it's considered a loan, the lender must then factor that into the mortgage approval amount, and buyers may then qualify for less mortgage money than they need.
​
You are ready to buy your home, and are piecing together your strategy for a down payment on the mortgage. You are fortunate that a portion of it will come from a personal “gift”… but what do you need to be aware of
If you will have gifted money as a part of your funds to purchase a home, you need to keep the following things in mind:

1. To be a gift, it means that there is no expectation of receiving that money back. If the “gifted” expects the money back, it is a loan not a gift. Falsifying information on a mortgage application is considered a felony.
2. The gifter must provide you with a letter that states (in writing) that he/she does not plan to ask for that money back… that it is indeed a gift.
3. The gifted may be required to provide up to two months worth of bank statements. You may also have to provide documentation the money transfer to show where the money originated, where it was deposited and what date the transfer occurred.
4. Buyers should ensure that any money used as part of the down payment is in a bank account in the early planning stages of the home search to minimize potential delays. Having the funds in the buyer’s account at least two months before starting the mortgage process is best as lenders consider this money to be ‘seasoned.’
5. Mortgage companies typically restrict gifting to owner occupied purchases and not investment properties.
6. The gift limit per gifted is $14,000 to remain tax free according to IRS rules and regulations. Keep in mind that this is a per gifted limit. So, it would be feasible to receive two separate $14,000 gifts from two gifts for a total of $28,000 to a individual buyer. That buyer’s spouse is eligible for the same brining a potential total to $56,000 in gifts for a married couple. [note: gifting limits are subject to change so be sure you check on current pre-tax gift limits before accepting a gift.]
7. If multiple gifts are given, they should be processed as separate transfers/checks to keep it clean.
8. Consider consulting with an accountant on the tax implications prior to pursuing gifts as a part of your real estate transaction. This will help you avoid any late inning hold ups or tax surprises.
9. It is also good to find out in advance if the lender requires a certain amount of the down payment to come from the buyer and ask about documentation requirements.