If you are on a tight budget while working towards buying your first home, a family member may be able to help you with your downpayment… lucky you! Financial support like this isn’t always an option, but if it is for you, this will be helpful! Heres a few questions I have gotten about gift money.
Can you use a gift as a downpayment?
If a family member offers to gift funds to help with your down payment, you may not think that you need to disclose this to your loan officer. From your perspective, as long as you come to the closing table with the ability to wire the correct amount you should be good, right? Unfortunately, it’s not that simple.
Your lender will need a crystal clear picture of your financial situation. This includes information on your assets, income and employment. Even though lenders do allow gift funds, they also require mortgage applicants to disclose the source of these funds.
Can a mortgage gift be repaid?
Nope! That’s why it’s called a gift – the gift giver is giving the funds to the home buyer without any expectation of being repaid. If the buyer is planning to pay back the funds the lender is required to factor that into the debt-to-income ratio. This is to protect the buyer and ensure that you can actually afford your mortgage.
How much can be gifted?
It depends on how much you like paying taxes. All jokes aside, you and your family members need to follow some guidelines to avoid any tax implications and still meet the loan requirements. Please note, I am not a licensed tax advisor but the current general rule of thumb is that each person can give another person up to $15,000 in a calendar year without facing a gift tax. If a couple who is buying a home together each has both of their parents alive, they can get $120,000 total – each parent can give each of them $15,000. For example, Emily’s Mom can give Emily and John each $15,000, and Emilys Dad can give them each $15,000. John’s parents can do the same. By doing this they would have a whopping down payment of $120,000 without being required to pay a gift tax.
Some important things to note:
- Your loan officer will request a signed gift letter from whoever gives you the gift stating that they don’t expect repayment.
- It’s not only about the downpayment, don’t forget that you will have closing costs as well.
I'm McCall Carter and I love helping first time home buyers make their first home more affordable and I love helping sellers looking to move up to their forever home. Let me know how I can help you make your real estate dreams come true.
2901 Ashton Blvd. #102
Lehi, UT 84043
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