Can I use a gift to make a down payment?

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 — but gifts cannot be used when financing a rental property.

Here’s how it works:

  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 $15,000 Gift Limit: If someone gives a gift of $15,000 or less in 2020 to another person, nothing has to be filed with the IRS, and there’s no gift tax. Of course, you should always check with your tax advisor, especially if you’re a first-time homebuyer. All you have to do (according to page 25 of IRS Publication 559) is file  IRS Form 709 to report the gift amount if it exceeds $15,000. Filing this form allows the IRS to keep track of how close the donor is to exceeding the current lifetime gift exclusion amount of $11,400,000 in 2020. Not too many people have to worry about blowing through that limit! Also, a married mom and dad can make four $15,000 gifts to, say, their married sons- and daughters-in-law for a total of $60,000, and they would stay below the annual limit.  Here’s how that would look:
    • Dad gifts $15,000 to son and $15,000 to daughter-in-law
    • Mom gifts $15,000 to son and $15,000 to daughter-in-law
  3. The easiest way to have the donor gift the funds is via a Cashier’s Check at the actual closing. This method avoids tedious verification steps which 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.
    • Get documentation from the donor that the gift check was cashed, like a copy of the back of the gift check, or a donor’s 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 usually easiest.

Gifts from domestic partners

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.

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