Understanding Gift Funds for Home Purchases: Key Questions Answered
Understanding Gift Funds for Home Purchases: Key Questions Answered
What Types of Loans Allow Gift Funds?
Gift funds can typically be used for down payments or closing costs when purchasing a single-family primary residence. These funds are accepted under most conventional loan programs, provided they meet specific lender requirements.
Who Can Provide Gift Funds?
Acceptable sources of gift funds include:
- Family members, including spouses or fiancés
- Close friends (less common)
- Employers, charitable organizations, or public entities (subject to lender approval)
Donors must provide proof that the gift comes from their own funds, often through bank statements or a signed gift letter.
Who Cannot Provide Gift Funds?
Prohibited sources include anyone with a financial interest in the transaction, such as:
- Home sellers or builders
- Real estate agents or mortgage lenders
- Developers
Funds from these parties are treated as sales concessions or discounts rather than gifts.
What Is a Gift Letter?
A gift letter confirms that funds are a non-repayable gift. Requirements vary by lender, but common elements include:
- Donor and recipient names/contact information
- Gift amount and property address
- Statement confirming no repayment expectation
Some lenders may waive the letter if funds have been in your account for 60+ days (“seasoned”) or if the amount is relatively small.
Additional Considerations
Gifts may have tax implications for both the donor and recipient. Consult a financial advisor or tax professional to ensure compliance with regulations.
Need Mortgage Guidance?
Contact a licensed loan officer to discuss your specific situation and loan requirements.
