Monetary Gift as a Down Payment

When it comes to buying a home, especially a first home, buyers can often count on family and friends to help. But from the lender’s point of view, family and friends should help with moving and repainting, not the down payment. Only when a down payment is in the form of a gift AND is given by someone in the borrower’s immediate family do lenders allow this type of down payment assistance.

If someone in your family is giving money towards your down payment, your lender wants proof that the funds are a gift and not a loan. This proof comes in the form of a “Gift Letter” that both the recipient and the person giving the monetary gift must sign. The wording of this form letter makes it very clear that the money is being given as a gift and is not a loan that must be repaid. Usually only borrowed funds secured by an asset can be used as a down payment.

The letter also defines the relationship between the individual giving the gift and the individual receiving the gift, the amount of the gift, and the address of the property being purchased with the monetary gift. Occasionally this letter will also specify the source of the gifted funds.

Who can give a monetary gift?

Lenders define immediate family as mothers, fathers, grandmothers, grandfathers, siblings, uncles and aunts. Friends, business associates, coworkers and other non-family members usually cannot make monetary gifts to use as a down payment. Exception is made however, when a borrower can show proof of a close relationship with the non-family donor.

Lenders can require the donor to provide supporting documentation of his or her ability to make such a gift. Bank statements or stock statements will usually suffice. If you receive a monetary gift that you intend to use as a down payment, make a copy of the check and also the deposit slip showing the date and amount of deposit into your escrow or bank account.