One of the most difficult things for first-time buyers is saving enough money for a down payment. If you are having trouble saving for a down payment because of the economy, one solution is to ask family members for help. However, there is a catch when sending money to loved ones for a down payment on a home: the money must be recorded with a gift letter.

Guidelines For A Present Towards a Down Payment

In a poll conducted in 2020 by the National Association of Realtors, 26% of first-time buyers and 7% of repeat purchasers said that saving for a down payment was the most challenging aspect of purchasing a house.

1 But there are certain guidelines to follow before you accept a gift for your mortgage payment:

• Gifts for down payments are limited.
• The financing may dictate the maximum amount of a gift used for the down payment.
• The money has to come from a generous donor. It cannot be considered a loan.
• A donation letter outlining the amount of the down payment must be provided as proof.

Who can provide money for a down payment follows the same guidelines as giving money to a family. Gift money for a down payment might come from family members like parents and siblings or reputable non-profits.

Conventional Loan Gift Policy for Down Payment

Gifts for the down payment are permitted by Fannie Mae and Freddie Mac's criteria for conventional mortgage loans. Presents can originate from:

• Someone who is married
• Relatives who rely on you financially
• A spouse or domestic partner, whether engaged or not

Suppose you're purchasing a single-family or multifamily house as your primary or secondary residence. In that case, you can utilize a gift from a family member or friend as your full down payment.

A maximum LTV ratio of 80% is required. If you're getting a Fannie Mae mortgage to buy a multifamily house or a second home, you'll need to put down at least 5% of the purchase price out of your pocket.

FHA Loan Down Payment Gift Restrictions

With a credit score of 580, the minimum down payment on an FHA loan is 3.5%. The Single Family Housing Policy Handbook specifies the following sources as acceptable for down payment gifts:

• Affinity Groups
• Very good pals
• Who to Contact: Your Company or Union
• Charity Groups
• Help with the initial mortgage payment

To be considered a gift, the money you receive from one of the above cannot be owed back to the donor.

Gift Restrictions For VA Loan Down Payments

Veterans and their families can benefit from low-interest rates and other perks of VA loans when they use them to purchase a house. With a VA loan, you can skip the down payment altogether. Donated money can be used as a down payment on a house, lowering the total amount you have to borrow.

Gift Rules For USDA Loans

USDA loans, similar to VA loans, don't necessitate a down payment, provided you fulfill certain income requirements. To lower the amount you have to finance, you might use a gift for a down payment at closing.

The Gift Letter For The Initial Expenditure

A gift letter will be required if you are utilizing gift money for your down payment. Mortgage down payment traditional loan letters should include:

• Your name
• The giver's full name and mailing address.
• The sum being given to you.
• The location of the house you intend to purchase
• The donor's relationship with the recipient
• The source of funding

Donations used as a down payment cannot include any borrowed monies. Thus the donor must make it clear that the money is a gift.

You and the donor of the down money should sign the gift letter. Additionally, the date has to be included. The donation date or expected gift date should be included.

The Rest of the Required Paperwork

Keeping records documenting the transfer of monies from the donor's account to your own is crucial. Regarding conventional loans, Fannie Mae recognizes four different types of documents.

• A duplicate of the benefactor's cheque and the receipt of funds from the loanee
• a duplicate of the deposit slip from the borrower and a copy of the withdrawal slip from the donor
• Donor's cheque copy given to the closing agent
• A settlement document that confirms the donation cheque was received

Suppose the down payment gift is not transmitted before settlement. In that case, the lender must confirm the gift or hand the closing agent a certified check, cashier's check, or another official check.