Your parents offer you $30,000 to help buy your first home.
Amazing.
But before the money lands in your account, tell your mortgage professional.
The gift may be completely acceptable.
How it’s documented matters.
Gift funds can be used with many mortgage programs, but the rules can vary depending on the loan. Who gives you the money, how it’s transferred, and how the gift is documented can all matter.
So before Mom hits “Send,” let’s make sure the money arrives with the paper trail your mortgage requires.
Can Gift Money Be Used to Buy a House?
For many mortgage programs, yes.
Gift funds may be allowed for a down payment, closing costs or other eligible expenses, depending on the loan program and transaction.
That can also change how much of your own savings you decide to put toward the purchase.
The CFPB recommends telling your lender about gift funds because the lender may need documentation showing where the money came from.
For example, Fannie Mae allows eligible gift funds on qualifying principal-residence and second-home transactions. Its guidelines specify permitted donors, acceptable uses and documentation requirements.
But that doesn’t mean every mortgage follows identical rules.
The loan program matters.
And so does the person giving you the money.
Who Can Give You Gift Money?
Parents are an obvious example, but mortgage guidelines can permit other eligible donors too.
Under Fannie Mae’s conventional guidelines, acceptable donors can include certain relatives as well as some non-relatives with qualifying relationships, such as a domestic partner, fiancé, former relative, or someone with a long-standing familial-like or mentorship relationship.
The rules also restrict certain interested parties to the transaction from acting as personal gift donors.
That’s why I don’t want you guessing.
Tell me who is giving you the money before anyone transfers it.
Why Does the Paper Trail Matter?
Because money being used for a mortgage transaction may need to come from an acceptable, documented source.
Imagine we’ve been reviewing your accounts and suddenly:
+$30,000
appears.
If that money is needed for your home purchase, underwriting may need documentation explaining where it came from.
The $30,000 itself may not be the problem.
The unexplained $30,000 can create questions we could have handled before the transfer ever happened.
That’s why my favorite time to hear about gift funds is before they move.
Not three days before closing.
Not after a mystery deposit appears.
Before.
What Is a Gift Letter?
Depending on the mortgage program, documentation may include a gift letter.
For a Fannie Mae loan using personal gift funds, for example, the gift letter must include required information such as the donor’s name, relationship to the borrower, gift amount and a statement that no repayment is expected.
There are also requirements for documenting the donor’s funds and/or transfer of the money.
And that “no repayment” language matters.
If your parents give you $30,000 but expect you to quietly pay it back after closing, that isn’t the same thing as a gift.
Tell your mortgage professional what the arrangement actually is.
Before Anyone Sends the Money
Give your mortgage professional four pieces of information:
Who is giving you the money?
How much are they giving you?
What will the money be used for?
Has any money already moved?
From there, we can determine what the specific loan program requires and how the funds should be documented.
The goal isn’t to make Mom and Dad’s generosity complicated.
It’s to keep a preventable documentation issue from becoming a closing issue.
The Better Question
Don’t stop at:
“Can my parents give me money to buy a house?”
Ask:
“What does my mortgage require before they send it?”
That’s the conversation I want to have before the $30,000 hits your account.
Has someone offered to help you with your down payment? Tell me in the comments.
If gift funds are part of your home-buying plan, we can review the financing and documentation requirements before the money moves.
Schedule a Mortgage Strategy Call
Information is for educational purposes only and is not a commitment to lend or financial advice. Gift-fund eligibility, acceptable donors, borrower contribution requirements, permitted uses and documentation requirements vary by loan program, transaction, occupancy, lender and other circumstances. All loans are subject to credit approval, program guidelines, property eligibility and underwriting requirements.
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