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How to Use Gifted Funds for a Down Payment

How to use Gifted Funds for a Down Payment

How to Use Gifted Funds for Your Down Payment

You’ve decided to take the plunge and become a homeowner, but one of the biggest challenges is coming up with the down payment. Did you know that you can use gifted funds as part of your down payment? Read on to learn more about using gift funds when purchasing a home.

What is a Gift Fund?
A gift fund, also known as a down payment gift, is money given to you by family members or close friends. This money can be used for your down payment and/or closing costs for your mortgage. Most lenders will accept gifted funds if they are from an eligible donor, such as a parent, grandparent, aunt or uncle, or domestic partner. The donor must provide a written statement verifying that the funds are indeed a gift and not a loan. In addition, it’s important to keep in mind that some states have their own regulations regarding gift funds so it’s best to check with your lender first before assuming that gifted funds can be used for your down payment.

How Does the Gifting Process Work?
When using gifted funds towards your down payment and closing costs, there are certain requirements lenders will need you (the borrower) to meet in order to approve your loan application. First and foremost, lenders will need proof of where the money came from (e.g., bank statements). If you plan on using multiple gifting sources (for example, both parents), then each gifting source will need to provide documentation verifying they gave you the money as a gift—not as a loan—and not expecting repayment. Additionally, most lenders require borrowers to have “skin in the game” which means if any portion of the down payment is going to come from gifted funds then you must contribute at least 5% of your own money towards the purchase.

How Much Money Can I Receive As A Gift?
Your lender should be able to tell you how much money you can receive as a gift based on the type of mortgage loan program they offer; however, generally speaking most lenders accept up to 100% of your required minimum investment through gifted funds (i.e., 20% for conventional loans). If you are planning on taking out an FHA loan then there may be restrictions since this type of loan requires 3.5% investment from the borrower; however, most FHA lenders will allow borrowers who qualify for special financing programs (such as first-time home buyers) to use all or part of their 3.5% investment requirement in gifted form if approved by their lender.

Gifted funds are an excellent way for borrowers who don’t have enough cash saved up yet for their down payment and closing costs when buying their first home. It’s important that borrowers keep in mind they must still meet certain eligibility requirements set forth by their lender even if they intend on using gifts or grants towards their mortgage purchase price because ultimately it’s up to them whether or not those funds are accepted by their lender during underwriting approval process! Best wishes!

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