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gifting a houseIf you’re lucky, you’re given a great many gifts in your life. Sometimes these gifts are material things like a Buzz Lightyear action figure or an Easy Bake Oven that was used exactly once before both you and your parents realized it was just easier to bake an actual cake in a real oven.

Sometimes you’re given the gift of knowledge. I’ve had at least five excellent teachers and mentors that had an enormous influence on my writing and what I’m doing today.

The gift can even be a good friend who has seen you both laugh and cry – someone who’s always there.

You may think of all these things as great gifts you’ve obtained over the course of your life, but did you know the down payment on your house can be a gift? It’s true.

In this post, we’ll go over how you can use gift funds to help fund your down payment or other mortgage-related costs.

Who Can Give a Gift?

Before we go over the different types of gifts and what they’re used for, we first need to discuss where the gift can come from. For Fannie Mae, Freddie Mac, jumbo and VA mortgages, the gift must come from a member of your immediate family (including your spouse, domestic partner or fiancé) or close extended family (grandparents, aunts or uncles).

With an FHA mortgage, the gift can come from any of those sources or the following:

  • A close friend who wants to see you do well
  • An employer
  • A labor union
  • A government agency
  • A public entity such as a nonprofit that provides homeownership to families of low to moderate income first-time home buyers

You can use this search engine to find nonprofits that provide FHA assistance in your area.

Gift Requirements

There are two types of gifts that your relatives or contacts can provide: a cash down payment gift or, in the event a family member is selling the property to you, a gift of equity. In each case, the funds may be used for the down payment, closing costs and prepaid interest points. Depending on the type of loan, you may also be able to use the gift in order to pay off debts so you can qualify for your mortgage. In certain situations, a client has to have a certain amount of payment coming from their own funds:

  • A 5% contribution is required on certain conventional loans if the down payment is less than 20%.
  • There’s a required 5% client contribution on all jumbo loans.
  • If your credit score is between 580 and 619, 3.5% of your FHA down payment has to come from your personal funds.

Show Me the Money: Cash Down Payment Gifts

A cash down payment gift is pretty straightforward. You get money from one of the sources above and use it toward your down payment and costs. There are a couple of things your lender will need from you in order to use the gift:

  • A gift letter (including, among other things, the amount of the gift and a statement that it doesn’t have to be paid back)
  • Evidence of the transfer of funds

You can show evidence of the transfer with the donor’s withdrawal slip and your deposit slip, or a copy of the check and evidence that it’s been deposited into your account. If the gift is made at closing, there must be a copy of the donor’s certified check and a settlement statement with the exact amount of the gift.

For FHA loans coming from a family member or close friend, some additional documentation is required.

We need a copy of the canceled or certified check. We also have to be able to verify that the donor had the money for the check in the account for at least 30 days prior to the gift. This is verified through bank statements.

If the donor borrowed the funds, they need to be able to document the source. The gift cannot come from cash the donor has on hand.

The Family Discount: Gifts of Equity

A gift of equity occurs when someone (usually required to be a family member) sells you a property for below the sale price. The difference between the price you pay and the listed price is considered an amount of equity to be used toward your down payment or to help pay off debt to qualify. It can also be used toward your points and closing costs.

On FHA loans, a client can also get a gift of equity from a nonprofit agency or his or her in-laws.

Gifts of equity are not allowed on VA and jumbo loans.

In order to use the gift of equity, a client must include a gift letter, just as if they were being given a cash down payment. Minimum client contribution requirements still apply as well.

That’s the lowdown on down payment gifts. If you still have questions, let us know in the comments.

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This Post Has 157 Comments

  1. My husband and I are purchasing our first home. The loan will be in my husbands name since my credit score is low and will give us a higher interest rate. He makes enough and has a good enough score to qualify on his own, but we will both sign on the deed. Our problem is that we needed to pay off one of his credit cards before closing on the house. If I took out a line of credit to pay for his credit card, and not towards any of the closing cost or down payment, would that at all put us in any danger of the loan not being approved? Would I have to show documentation where the funds came from to paying off his credit card? Would they care that it came from a personal line of credit?

    1. Hi Joanne:

      I see that you’ve made contact with us. I’m going to have someone reach out to go over the best option for you in this situation because everyone is a little different. They’ll be in touch shortly.

  2. Kevin:
    What is the statute of limitations on having to do a gift letter.

    I have gifted funds to my daughter for years for her to pay off her student loans, in preparation for buying a house. I want to do a final gift now for a purchase at least a year out. Do I need to prepare a letter and other documentation if a year has passed?

    1. Hi Tony:

      If the funds have been in her account for a year, they likely wouldn’t need to be sourced. A lender might ask for a few months of bank statements, but not from that far away. Hope this helps!

      Kevin

  3. My fiance and I bought a house from my Grandmother. She gave me ( letter is only in my name) a gift of equity on it to help us hit our 20% down payment. My name is on the deed but not on the loan. We have actual separated and want to take my name off of the deed. Am I entitled to that Gift of Equity that was in my name only from my grandmother before I sign my name off?

    1. Hi Sarah:

      I would talk to an attorney to be sure. However, I believe because no money actually changed hands, it would just be considered equity in the home. Since you’re both on the deed, you both have 50% ownership in the house regardless of where the gift of equity came from. You would be entitled to that 50%.

      Thanks,
      Kevin

  4. Was wondering if someone can answer. My wife is currently the only name on the deed of current home. We plan to use the proceeds from the sell of this home as a down payment on a new home. My wife credit prevents us from filing for the new home mortgage together. Is the money we are providing for the down payment considered a gift to me since I will be the only name on the new mortgage? If so, are there any drawbacks to it?

    1. Hi Anthony:

      If you both have access to the account in which the funds are being deposited, it isn’t considered a gift. Even if you don’t, you just have to have her fill out a gift letter. The only drawback to this is that gifts are taxed, but there’s a lifetime tax exclusion on the first $5.6 million in gifts or $11.2 million for couples. You can find more information here. Hope this helps!

  5. My daughter and son-in-law are buying a home with the proceeds of sale from their current home but will be short for a 20% down payment by approximately $10,000.00 . I want to gift $10,000.00 to my daughter by withdrawing funds from my IRA. Are there any catches to this other that the IRA withdrawal will now be considered taxable income for me? The IRA funds will be transferred to my checking account and I will then write my daughter a check.

  6. We have to pay my mother 90k for the house and the gift of equity is being used for the down payment/closing costs. How does this work? We are being told our total loan would be for 115k but the “gift letter” the bank is wanting her to sign has the total at 115k not the 25k equity amount….We are confused and not getting the answer from the bank other than this is the way it has to be on paper…. We do not want her to have any issues w/ her taxes next year showing she made a profit off the house. She has 90k in it so that is what she wants for it and doesn’t want anything saying more money than that. Can you explain this please. Thanks!

    1. Hi Mandy:

      Other lenders may have different requirements. We require that the gift amount be listed, not the overall purchase price of the house as if there was no gift, which it sounds like your lender wants. I also can’t really advise you on whether there would be any tax implications due to the gift letter. That’s a question for a tax professional.

      Thanks,
      Kevin

  7. Hi. I am planning to buy a property from a family member. The house is appraised $228,00 and she owes nothing. She is selling it to me for $220,00. My credit score is in the 700’s. Do I need to come up with a down payment. Also the loan interest rate would be the same as if I were to buy the house at the regular price $228? Thank you

    1. Hi Alicia:

      Whether you need to come up with any portion of the down payment depends on the size of the down payment as well as what loan program you end up going with. One of our Home Loan Experts could go over that with you at (888) 980-6716. I can tell you that the interest rate is based in part on the size of the down payment, but it doesn’t make a difference where the down payment comes from in terms of the type of rate you would get. In terms of the tax implications, I recommend talking to a tax professional. Hope this helps!

      Thanks,
      Kevin Graham

  8. Hi. I am planning to buy a property from a family member. The house is appraised $228,000 and she owes no mortage or in otherwords it has been paid off. She is selling it to me for $200,000. I believe my credit score is around 753 do I need to come up with a down payment? Also would I end up paying more to IRS or would she be paying taxes for this gift of equity? Thanks

  9. I am buying a house. I have some money with me and my wife is gifting me the rest of the down payment. But she also received a gift from my father and my friend. ( helping us to grow and move forwared – this is also a gift from them to her). ( no need to pay back).

    our mortgage company said they dont need any documentation as her account is different than my account and that she is nto the primary on teh house.

    Are there any complications down the lane from the money she received a gift from. My dad is in a different country but my friend is here.

    Please suggest. i dont know all the rules of this gifting. I was told, only if I recieve the gift i have to show documentation. but the the gift given to my wife by someone else does not need to be documented.

    please suggest.

    1. Hi Bala:

      I would just be sure to follow the guidance of your lender. If the money is ultimately coming from your wife and they have no problem with it, you should be OK.

      Thanks,
      Kevin

  10. What happens when that relative is forcing you to pay the gift of equity back? I thought it was a gift. Is that legal ? It was a relative who dropped the price of the house so my husband and I could be approved for the loan.

    1. Hi Jamie:

      It’s not legal. In fact, you should have a document for your mortgage company that’s a gift letter stating you don’t have to pay it back. That’s a requirement to get a mortgage. That letter should be legally binding. Hope this helps!

      Thanks,
      Kevin Graham

  11. My father in law is selling us his home. The gift of equity is in the amount of $161,500 I believe. We are going to use that for down payment, but the question arises in the buy down of points. If we use the gift of equity to buy down the points, can we write that amount off for 2017 tax return? Or does the buy down then need to be amatorized over the course of the loan?

    1. Hi Joe:

      This question is a bit complex and may depend on how your loan is structured. I want to make sure you get the right information. With that in mind, one of our Home Loan Experts would be happy to talk to you if you give us a call at (888) 980-6716.

      Thanks,
      Kevin Graham

  12. Hi,

    So my parents are selling me there house that was appraised @178,000. FHA only gives 85% of the loan. They are telling us because it’s a non arms length transaction there telling us we need to put 15% down which is 26,700 that they was my parents to give us as a gift of equity. Can the that 15% be waived because we’ve lived i the house for 5 or more years?

    1. Hi Robin:

      I’m going to recommend you talk to one of our Home Loan Experts in order to get you a definitive answer. That being said, depending on how your parents were using the home, you may have to put down 15%. However, there’s nothing that stops that from being a gift of equity from your parents. You can reach out to us by calling (888) 980-6716 and someone will be in contact with you.

      Thanks,
      Kevin Graham

  13. I came across this blog and has been very informative. But also opened some new questions for me.

    Q. If an In-Law gifted my wife and I 150,000 and we put that into a construction loan. What is the tax repercussions with that? We own land already and wanted to build a newer home on it and have them move into the current home as an in-law suite.

    1. Hi Seth:

      We generally avoid giving specific tax advice because we’re not tax professionals. However, under certain circumstances, it’s possible that your in-laws would have to pay gift tax. This article may have more helpful information. Always consult a tax professional when in doubt.

      Thanks,
      Kevin Graham

  14. Hi,
    Our daughter and son-in-law are applying for a loan. Our daughter was told she had too much debt to ratio income because of a loan she had taken out through Navient. My wife and I have been repaying the navient loan for over two years. So we paid off the navient loan, sent the navient receipt that the loan had been paid off. We even signed a letter stating that it was a gift to our daughter but now the quicken loan officer says that we need to provide documentation from our checking account about deposits and give explanations about deposits that are made to our checking account. What gives?

    1. Hi Larry:

      With any gift regardless of what it’s used for, there are certain requirements regarding evidence of deposit and transfer of the funds. I’m going to have someone reach out to you about this to go over it in more detail, but this is a requirement of the major mortgage investors. There are various ways you can give evidence. Someone will reach out.

      Thanks,
      Kevin Graham

  15. How much in gift equity is allowed on an fha transactio? And does it make a difference if the borrower is currently renting the property from the seller (her brother)?
    I have been told that there is a cap. My daughter is buying a home from my son. My son does not live there. The sale price is 235,000 the current value is 256,000. The seller owes 169.000.
    After the sales price there is 21,000. Can all of this be used towards closing and down?

    1. Hi Sherry:

      There is no limit on the amount of the actual gift. If she had a credit score between 580 and 620 we would require that she put down at least 3.5% of her own funds, but that wouldn’t limit the gift amount. However, since it’s a non-arms length transaction and it’s not her brother’s primary residence, what you might run into is that the down payment has to be at least 15% in this situation under FHA. That does include the gift funds. I’m going to recommend you speak with one of our Home Loan Experts to go over your situation more thoroughly and give you better information. You can get a hold of them at (888) 980-6716.

      Thanks,
      Kevin Graham

  16. My grandparents are selling me their home. It appraised for 115,000 and they are selling it to me for 100,000. My lender is requiring me to put down 5%. I asked about doing a gift of equity to cover my closing costs since we are buying it for 15k less than it appraised for and my lender doesn’t seem to know how a gift of equity works. She explained to me that my grandparents have to take out a heloc, hand me the cash from the heloc to use towards my downpayment, then I purchase the house from my grandparents at their new loan amount (what they originally owed plus the heloc amount) but from everything I have read, I don’t see one mention of the seller having to do a heloc to get the down payment money. What they are telling me isn’t accurate, correct?

    Where does the actual money come from? No one is actually bringing a check of 5% to the bank, right? Is the 5% more or less “waived” because we are purchasing the house for less than whats it worth?

    1. Hi Kyrstin:

      I’m going to break this down a little bit. With certain loans, depending upon the type of property you’re buying and whether it’s conventional or FHA for example, clients are required to bring a certain amount of their own funds to contribute to the down payment. It sounds like this particular bank is trying to find a way for you to get those funds and source them. However, you’re not always required to bring your own funds to closing. At the end of this, I’m going to recommend you speak with one of our Home Loan Experts so we can give you more definitive advice on your situation.

      In terms of the actual gift of equity itself, you’re right. No one is actually bringing the gift funds to the bank. They’re selling you a property for less than it’s worth and giving you equity which is tied to the value of the house. There is no physical money in the gift itself in this case.

      In order to look into whether you have to bring your own funds, I’m going to recommend you speak with one of our Home Loan Experts. You can get in touch with them by calling (888) 980-6716. I hope this helps!

      Thanks,
      Kevin Graham

    1. Hi CS:

      That’s an excellent question and I want to make sure you get the right information. One of our Home Loan Experts will be happy to help you if you call (888) 980-6716. Thanks for reaching out!

      Thanks,
      Kevin

  17. Buying my in-laws house for 102,500 they gave me a gift of equity letter ,, the house appraised at 114,600. I want to use the gift of equity as the down payment of 20 percent. What happens to the difference in the selling price minus the 20 percent for down payment where does the rest of the equity gift go???

    1. Hi Dave:

      if I’m understanding you correctly, your parents are selling you the home which they would normally market at $102,500 with a 20% discount, so you would be paying a total of $82,000. If that’s the case, you get the equity and you would have almost 29% equity. If you were paying 102,500 and the house appraised for $114,600, you would be getting just over 10% equity. Hope this helps!

      Thanks,
      Kevin

  18. If my daughter is buying a home and her grandparents are going to gift her $1500 towards to closing cost on a conventional loan, how does that work?

    1. Hi Cathy:

      Assuming it’s a one-unit property, your daughter isn’t required to make a minimum contribution to her down payment. She just has to make sure the down payment includes enough to cover the minimum for whatever loan she’s getting.

      Beyond that, her grandparents need to provide a gift letter that includes the following:
      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

      Then the lender would need proof of transfer that can come from a withdrawal and deposit slip or a copy of the check and a bank statement showing the receipt of the funds, for example. Hope this helps!

      Thanks,
      Kevin Graham

  19. we currently live with our inlaws We are going to do a gift of equity loan. But now told that the inlaws have to move in order to do the loan. Is that accurate? why can we not do the zero out of pocket if we all currently live together. we are simply trying to get the house in our name.

    1. The reasoning for this is that if you both live there, it’s seen as a bailout transaction. The way to do this would be to get a quitclaim and pay them consideration, but you can’t get a mortgage.

  20. What is the maximum amount allowed to be gifted from grandparents to grandchildren? Pertaining to selling their home for less than the appraised value.
    Thank you

    1. Hey Chris! There’s no specific maximum amount, although you may be required to put in a certain amount from your own funds depending on the type of loan you’re getting and the amount of the gift. Thanks, Allison.

  21. Hi Kevin,
    I have been reading about the “gift of equity” option. I understand that if the home appraises for more than the relative is asking then the difference can be used towards the down payment and closing costs.
    My question is this:
    Is this real actual money, this gift of equity?
    If it is, where does it come from?

    We are buying my mother in laws secondary home. She owes $115,000 and that is what she is asking. If it appraises for more, then the difference can be used as a gift of equity. I understand that portion but there seems to be a gap. The gap being…where is this money coming from?

    To be certain, our actual loan that we would pay back would only be the $115,000 and NOT $115,000 PLUS the gift of equity amount? Is that correct?

    Thank you,
    Angel

    1. Hi Angel! My name is Miranda and I work with Kevin. I want to make sure we’re giving you the right info for your specific situation. You can call (888) 980-6716 to talk with one of our home loan experts and they can help you out.

    2. I too would like to know the answer to this question.

      Is this “real actualy money”, this gift of equity?
      If so, where does it come from?

      I am in the same scenario right now and I am very confused by this.

      1. Hey Jen! This is definitely a great question. Privacy is really important to us at Quicken Loans, and we value one-on-one communication when it comes to discussing your private information. So we encourage you to speak with one of our Home Loan Experts at (888) 728-4702.They will be able to give you the most accurate information regarding your specific question. I hope this helps! – Allison Hendricks

    1. Hi Taylor, Depending on the type of loan, you may be able to use the gift to help pay off credit card debt in order to qualify. I’m going to recommend you speak with one of our Home Loan Experts by calling (888) 980-6716, who can give you more information based on your situation.

  22. I have a house valued at $260,000 and would like to sell it to my son for $210,000, so he receives $50,000 in gift equity. The house was previously a rental property, so I will be required to pay taxes on any capital gains. Which of these two prices will be used as a basis for calculating capital gains tax?

    1. Hi Angela:

      I can tell you about mortgage policies, but for tax advice we really recommend talking to a financial advisor or tax preparer. That’s the best advice I can give you.

      Thanks,
      Kevin Graham

  23. So I am getting a house that me aunt owns meaning she owes nothing on this house. For $90,000 but if she puts it at sale price of $120,000. And gifts my $25,000. Would I still be paying downpayment or closing cost. If so how much and it would be a conventional loan.

    1. Hi Michael:

      Gifts of equity work based on fair market value. The gift of equity is the discount she gives you off the fair market value. So if the house appraises for $120,000 and you pay $90,000, you’re getting 25% equity right up front. You may not get quite that because some of it could be used to pay closing costs. However, you wouldn’t have to make a down payment because you’re getting more than 20% equity from the gift. Hope this helps!

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