Receiving a gift from a family member to help make the down payment on a mortgage is not as straightforward as it sounds. The nature of a down payment can be scrutinized by lenders almost as closely as the income of the borrower. Mortgage loan applicants must follow certain guidelines to have a gift successfully applied toward the down payment on a mortgage.
The infusion of funds from a third party can affect a lender's analysis of the borrower's financial condition. A down payment amount received from a family member must be considered an outright gift. The down payment gift cannot be a loan because that could lessen the ability of the borrower to repay the mortgage balance. To confirm the nature of a gift, most lenders require a specific statement from a third party who provides any down payment assistance.
Your mortgage lender is likely to request copies of your recent bank statements. Any large deposits into the account will probably attract the lender's attention and require further explanation on your part. If an amount given to you for the down payment has been deposited, your lender will most likely require that you submit a gift letter to protect the lender's loan position.
A gift letter essentially confirms that your relationship to the third party is so close that the third party is willing to give you an outright financial gift. In fact, gifts that qualify as a down payment are allowed only from a select list of relatives or acquaintances. The definition of who can provide a down payment gift is dependent on the type of mortgage being sought.
Conventional Fannie Mae mortgages
If you are working with a lender who sells their loans to Fannie Mae, there is a fairly wide list of relatives who can provide you with a down payment gift. Either a domestic partner or a future marriage partner can also give you a down payment. Other than the gift itself, the donor of a down payment is not allowed to have any financial stake in the transaction.
For mortgages that are guaranteed by the Federal Housing Administration, additional types of donors can provide a down payment gift. An FHA-approved lender can accept a down payment gift from your employer or a close friend, as well as a few other third-party entities.
Accounting for the down payment is just one of many financial considerations in obtaining a mortgage. For that reason, it is recommended to include a contingency clause in your purchase contract making the home sale contingent on the completion of mortgage financing.
Contact a realtor that specializes in local homes for sale for more information and assistance.