Gifts for a Down Payment Are No Problem

Gifts from relatives and domestic partners are an acceptable source for both down payment and closing costs when financing a primary residence or vacation home.   Gifts cannot be used when financing a rental property.  Here are some important things to know about the documentation required to verify gifted funds:

  1. Accunet will prepare a Gift Letter for both you and the gift donor(s) to sign, detailing the amount of the gift, your relationship with the donor and stating the money is a true gift and not a loan.
  2. The “myth” of the $14,000 Gift Limit – Of course you should always consult with your own tax advisor.  With that said, it’s true that if someone gives a gift of $14,000 or less in 2015 to another person, nothing has to be filed with the IRS and there’s no gift tax.  But all you have to do according to page 25 of IRS Publication 559 if you give someone more than $14,000,  is to file  IRS Form 709 to report the gift amount that exceeds $14,000.  Filing the form allows the IRS to keep track of how close the donor is to exceeding the current lifetime gift exclusion amount of $2,081,800.   Not too many people have to worry about blowing through that limit!  Also, a married mom and dad can make four $14,000 gifts to say their married son and daughter-in-law for a total of $56,000, and they would stay below the annual limit.  Here’s how that would look:
    • Dad gifts $14,000 to son and $14,000 to daughter-in-law
    • Mom gifts $14,000 to son and $14,000 to daughter-in law
  3. The easiest way to have the donor give the gift funds is via a Cashier’s Check at the actual closing.  This method avoids several tedious verification steps that are required if the donor gives the gift to the home buyer via personal check.
  4. If a personal check is used to provide the gift, we need to document an “audit trail” to make certain the donor actually gave the gift funds and not some interested party to the transaction like the real estate agent or seller. Fraudulent gifts were one of the problems in the mortgage and foreclosure crisis. If you’re receiving a gift via personal check, here’s what you need to do:
  • Make a copy of any gift check(s) received.
  • After a gift check is deposited into your bank account,
  • We will also need documentation from the donor that the gift check was cashed.  A copy or PDF of the back of the gift check is available through most online banking sites, or the donor can provide a copy of their bank statement showing the gift check cleared their account.
  • We also need to verify the gift check was deposited into your bank account.  A copy of a deposit receipt or an online account transaction history are the two ways this can be accomplished.

 Gifts from domestic partners or fiancés –

If both partners in a relationship are applying for the loan, there’s generally no issue.  What gets tricky is when only one partner is applying for the loan but some or all of the down payment is coming from the non-borrowing partner.   In these cases, we need to verify that an actual previous relationship exists, typically by showing both parties have lived at the same address for a significant period of time.   The gift check from the donor showing the same address as the gift recipient is a good source of documentation for verifying common residency.  In the case of couples engaged to be married, a newspaper announcement of the engagement or copy of the wedding invitation itself can also typically be used as documentation of the relationship.

Welcome to Accunet Answers. The question that I want to answer in this segment is “Can I get a gift for a down payment?”

The answer is unequivocally “yes” on almost every type of loan and loan product that we do here at a Accunet Mortgage, certainly all the most popular loan programs. The gift can come from any blood relative so grandparents, parents, siblings, cousins, aunts, uncles – also significant others, especially if you happen to be living together, or fiancés. You cannot get a gift, however, from the seller, the realtor, the builder, the lender – anybody who’s involved in the transaction. The gift can be used for the entire down payment, and it can also be used to pay closing costs and to establish your deposit into your property tax escrow account. Really, everything that you need to pay at closing can come from a gift.

There are two ways for a buyer to receive gift funds – the hard way and the easy way. The hard way is for the donor, let’s say your grandmother, to give you a check or personal check and you deposit it into your checking account that you’re going to use to buy the home. The difficulty there, and it’s not too terrible, but there are several steps is that we have to get a copy of the front of Grandma’s check and then once the check clears we also have to get a copy of the back. And what lenders are trying to do here is make sure that someone doesn’t do the old switcheroo and substitute a check from the real estate agent, for example, and substitute that for Grandma’s check. We have to see that Grandma’s check in the case of a personal check has actually cleared her account. Then we also have to document that money going into your bank account so that typically involves getting a copy of the deposit slip or a screenshot from your online banking.

Now let’s talk about the easy way or Accunet’s favorite way for gift funds to be transferred, and that is via a cashier’s check from the donor, let’s say grandma again, to the closing agent, and that is done at the loan closing. By going this way we don’t have to document that Grandma’s check has cleared her account because it’s a cashier’s check payable to an independent third-party – the closing agent which is typically a title company. So that just cuts out a lot of annoying steps, but we can handle it either way.