An overview of gift funds, what they are, and what we might need from you if you are using gift funds as a part of your down payment
Please read this article if you received any sort of financial gift that you are using towards your down payment. This includes anytime someone sends you a large sum of money, or if they pay any sort of deposit on your behalf for the purchase of the property.
If you received funds from another person, but will not be using this money for closing costs or the down payment, then you will not need to prove the source of the gift funds.
If you are buying this property from a relative or friend, or from someone you have a business relation with, they might offer you a "gift of equity" which means they will lower the price for you. A gift of equity is treated slightly differently than a traditional financial gift, since you will not need to prove where the money is moving.
Can I use these gift funds towards my available assets for closing?
If you received (or will receive) a large financial gift from another person who is not on the mortgage (any amount higher than half of your monthly income), this will count as gift funds. However, according to Fannie Mae and Freddie Mac guidelines, you can only use this money if it's from certain relations. Please see the list here:
- Your spouse
- Your parents (biological, adoptive, step, and foster parents all qualify)
- Your grandparents or great-grandparents
- Your aunts and uncles (including step-relatives)
- Your cousins (including step-relatives and adoptive relatives)
- Your nieces and nephews (including step-relatives)
- Your in-laws (including parents, grandparents, aunts, uncles, brothers-in-law, and sisters-in-law)
- Your children (biological, adoptive, step, and foster children all qualify)
- Your siblings (including step-relatives, foster, and adoptive siblings)
- Your domestic partner
- Your fiancé or fiancée
- Your future in-laws
If you received gift funds from someone other than the relations on this list, check with your loan officer and they will advise on your situation.
What do we need to "source" the gift funds?
- A Gift Letter, which can be downloaded here (or here for gifts of equity). Please make sure that all of the following information is completely and accurately included in the Gift Letter:
- The dollar amount of the gift
- The date the funds were transferred into your account
- A statement from the donor that there is no expectation of repayment, clarifying that this is a gift and not a loan
- The donor’s name, address, phone number, and relationship to at least one of the borrowers
- Signature of the donor
- Proof of Transfer of Funds. This is necessary once the funds have moved into your bank account or directly to the escrow agent. Please provide one of the following documents to prove this transfer of funds:
- Copy of the donor’s check to you (or wire receipt with their name on it)
- Copies of both the donor’s withdrawal slip and borrower’s deposit slip
- A copy of the donor’s check to the escrow agent
- An account statement from your account showing receipt of the donor’s check
Where can I find it?
- The Gift Fund Letter template can be downloaded here. Once you and your donor have completed the letter and signed, please upload it to your Closing Tracker as a PDF.
- Don’t forget that you will need to get some of this information from your donor, so please make sure to get this early to avoid any unexpected delays.
- Deposit slips can be found on your bank’s online portal. Log in, go to your account, and select the correct transaction. Once you have selected the correct transaction, download that information and add it to your Closing Tracker.
- Copies of the donor’s checks and withdrawal slips can be found on your donor’s bank portal. Once downloaded as PDFs, please upload them to your Closing Tracker.
Why do we need this?
- The purpose of the Gift Letter is to certify that the money you plan to use for your down payment is not an additional loan that you are taking on, which is risky for the lender.
- The fund transfer documentation proves that you received the gift funds and are able to use them. This documentation also shows that your relative had the money in their account previously and did not take out a loan in order to give you the gift.
- In the specific case where you live with and will continue to live with your donor, who is a relative or domestic partner, the additional documents are used to demonstrate your relationship with the donor.
- Sometimes borrowers are unsure about what qualifies as a gift and do not let us know that they received a gift. It’s important for us to know this so that you can start collecting the documents you need early on in the process.