Using Gift Money for Your Down Payment: What You Need to Know - Quicken Loans Zing Blog

I’m getting married in July, and we’re hoping to buy a house when our lease is up in September. We’ve spent a fair chunk of change on our wedding, but (fingers crossed!) we’re hoping to get at least some of the money back as wedding gifts, and some of our relatives have hinted that that’s what we’ll be getting. Don’t get me wrong: I’m pretty darn excited to get a toaster oven, nice dishes, stemware and all that, but I certainly won’t turn down money for a down payment.

You might think that you can just use whatever financial gifts your friends and family give you for your down payment, but using gift money is not as cut and dried as you might think. Whether you have $20 or $20,000, the source of the funds in your bank account will matter just as much as how much money you actually have. To understand why the source of your funds matters to your mortgage company, you’ll first need to understand what underwriting is and how it impacts your loan.

Understanding Underwriting

Underwriting refers to the process in which your lender looks at your credit score, income and assets to determine how risky it would be to lend you money. When underwriters look at your assets, they check to make sure that the money in your account is indeed YOUR money – that is, they want to make sure any large deposits in your account are gifts, not loans, from your friends and family. This is essential to ensuring that you can actually afford your mortgage payment and that you’ll be likely to pay the loan back. If you used a personal loan to qualify for a home loan, chances are you’d be left with a big financial mess once you had to start paying both loans back.

So how can an underwriter establish that deposits in your bank account are gifts and not loans? They’ll need the gift-giver to write a gift letter. Let’s take a look at what that means.

Gift Letters

If you’re using gift money as part or all of your down payment, you’ll need the donor to write a gift letter to your mortgage company that makes it clear that the money is a gift and not a loan. Here’s what your gift letter should include:

  • The donor’s name, address and phone number
  • The donor’s relationship to the client
  • The dollar amount of the gift
  • The date the funds were transferred
  • A statement from the donor that no repayment is expected
  • The donor’s signature
  • The address of the property being purchased

It’s important to understand that the gift letter in itself may not be enough evidence for the mortgage company. If you’re getting an FHA loan, the person who gives you the funds will be required to provide a bank statement in addition to a gift letter – so you’ll probably want to let your generous friend or relative know this upfront.

Gift Money and Your Loan Type

One thing to consider is that the amount of gift money you use in relation to how much of your own money you put down may impact what kind of loan you can get. Here are some rules about gift money as it relates to different types of loans.

Conventional

  • If you put down 20% or more, it can all be from a gift.
  • If you put down less than 20%, part of the money can be a gift, but part must come from your own funds. This minimum contribution varies by loan type.
  • You can only use gift money on primary residences and second homes.

FHA and VA

  • All of your down payment can be gift money.
  • If your credit score is between 580 and 619, at least 3.5% of your down payment must be your own money.
  • You can only use gift money on primary residences.

Keep in mind that these rules are subject to change based on lending laws – so check with your mortgage company for up-to-date guidelines.

How the Timing and Amount of Gift Money Impacts Underwriting

After my wedding, I’ll (hopefully) have checks to deposit – but I don’t want these deposits to cause problems when I’m trying to qualify for a mortgage. I spoke with Lindsay Villasenor, a Quicken Loans divisional vice president, to get some further details on how gift money impacts underwriting.

Timing

According to Lindsay, Quicken Loans requires a 60-day history of assets for qualification purposes. As long as you have documentation for the past 60 days, your mortgage company can take it from there.

Amount

So within that 60-day period, which deposits do you have to worry about getting a gift letter for? Grab your wedding veil and jump into this hypothetical situation with me for a moment.

You just got married. Aunt Sue gave you a $75 check, but Grandma Betty gave you $10,000 for tying the knot (you’ve always suspected you were the favorite grandkid). Will you need gift letters for both deposits?

In general, your underwriter will need to verify the source of any large deposit. So what’s the criteria for “large deposit”? According to Lindsay, it’s “any single deposit that exceeds 50% of the total monthly qualifying income.” This is for conventional, VA and Jumbo loans.  For FHA, the threshold is 25%. Let’s say you are doing a conventional loan for our example. If you make $4,000 a month, any deposit over $2,000 would probably be questioned by your underwriter. Therefore, the underwriter will probably want to verify that Grandma Betty’s $10,000 gift is a gift, not a loan, so you’ll need to ask her for a gift letter. Aunt Sue’s gift, however, is small enough that the underwriter might not question it.

Of course, this is partially up to the underwriter’s discretion. If there are any deposits that seem to be out of the ordinary, your underwriter may question them regardless of your income. Here’s an example that Lindsay gave: “If a client only maintains a $400 balance on a regular basis, but all of a sudden has a $5,000 deposit, even though that $5,000 may not be over 50% of the total income, it raises a red flag.” So we would dig deeper into that situation, just to make sure the situation checks out. So while your Aunt Sue’s small gift might not be questionable in itself, if the underwriter finds that it’s out of the ordinary, he or she may require gift documentation.

If you know that you’ll be getting any financial gift to help with your down payment, be prepared to document it for your mortgage company. Do you still have questions about using gift money for your down payment? Speak with a home loan expert today or comment below, and we’ll get you some answers!

 

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This Post Has 212 Comments

  1. I got a gift from my father-in-law he filled out the gift donor paper then asked for 30 days of his bank statement and on it apparently he transferred money from one account to another 4 days after giving me the gift so now they want bank statements from the other account for 30 days and he’s refusing so I have to move out of the home I rented for 9 years in 5 days because they’re not going to give me the loan what can I do

    1. Hi Jesse:

      FHA has some fairly specific guidelines. Your only option might be to ask him to show the bank statements, but I’m going to have someone reach out to you about this. They can give you better information than I can.

      Thanks,
      Kevin Graham

  2. My husband and I are looking to get gifts from both sets of parents. My parents being in France, do you know what is the maximum gift amount they can give before being taxable and also once going over that limit, what is the tax rate? What about for money coming from the US

    In addition, does the money from both sets of parents be in our account prior to applying for a loan? and if so for how long? we are applying for either a 30 or 15 year fixed mortgage.

    Thanks in advance,

    Amelie

    1. Hi Amelie:

      With the money coming from France, this gets complicated and I would recommend talking to a financial adviser to get the answer to the tax portion of your question. With regard to how long the money has to be in your account, that depends on the type of loan you’re getting (FHA, VA, conventional, etc.) I’m going to have one of our Home Loan Experts reach out to go over this with you.

      Thanks,
      Kevin Graham

  3. To get pre approved for a mortgage loan, I submitted a gift letter from my wife’s aunt (along with her statements as proof). Now that we are getting closer to closing, it doesn’t seem as though my wife’s aunt will be able to deposit the gift to my account. My wife has then decided to gift me the money, since I am the only one on the loan. Will this be ok, since my wife isn’t the “original gifter”? And will it be ok to transfer the gift to me a couple of weeks before we close, or is this not enough time? (My wife has two months of statements as proof).

    1. Hi Lou:

      I’m going to have someone reach out to you about this, but it depends on the type of loan you’re applying for in terms of how long the money has to be in your account. Your wife can gift you the money.

      Thanks,
      Kevin Graham

  4. My MiL has told my husband and I she will gift us $20-30k towards a down payment. Should we accept this now and place in a seperate savings account or wait till we are ready to buy to have her give that to us? I foresee that could be anywhere in the next 3-9 months.

    1. Hi Alltsov:

      Depending on the type of loan you get, there are requirements that the funds sit in your account for a certain amount of time. I’m going to have someone reach out to help go over this with you.

      Thanks,
      Kevin Graham

  5. Is it possible to receive a gift ($50k) from my domestic partner’s parent? I will be the one applying for the mortgage, not my partner. Or must it be gifted from my partner’s parent to him, and then from him to me? It seems like this would cause both he and his dad to pay taxes on the gifted amount. Thanks

    1. Hi Kate:

      I’m not sure how this works technically because you’re not married, so they may or may not be considered your in-laws. I’m going to get this to someone who can give you more definitive advice. They’ll be reaching out.

      Thanks,
      Kevin Graham

    1. Hi Jerry:

      I’m not sure if there’s a difference if the money is coming from overseas so I’m going to pass this on to a Home Loan Expert that can look into your situation. Thanks for reaching out!

      Kevin Graham

  6. If another person desires to give a person a gift to help them I don.t think they should be penalized by saying they have to give you all their personal financial information and if they don not do as you all wish you deny the person the loan. come on how real is that.

    1. Hi Ruby:

      I understand your concerns. Unfortunately, the investors that buy mortgage loans have fairly strict underwriting standards in order to make sure that the loans are going to be sound investments. While it can be a lot of information to give up, any mortgage company will treat your information with the strictest confidence and the highest security.

      Kevin Graham

  7. It says on the website that you can put 25% of your monthly income in your account without it being considered a gift for single deposit’s. Is that per month or can I make many single deposits under the 25% without it being an issue. This would be for FHA as well. Also for the monthly income would it be gross income or net income. Thank you.

    1. Hi Greg:

      I’m not exactly sure what you mean by 25%. If you’re putting your income in your account, it’s not a gift anyway. I’m going to have one of our Home Loan Experts reach out and help you look into your situation.

      Thanks,
      Kevin Graham

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