The process of buying a house may require a large amount of money for your down payment, depending on the mortgage product you select. If a generous relative has given you down payment money for a wedding or graduation gift it is important to know how to most appropriately use this gifted money to purchase a home. Understanding what gift funds can be used for, who can contribute them, and the crucial steps to document them when applying for a mortgage may be important for your home-buying process.

What Can Gift Funds Be Used For?

Most people use gift funds to pay for your down payment, which can help lower the initial financial burden of buying a home. Gift funds can also be allocated to cover closing costs and the various fees associated with buying a house.

Where Can Gift Funds Come From?

Gift funds for a mortgage may come from various sources, with family members being the primary contributors. Parents, grandparents, and close relatives are among the most common donors who offer financial assistance for down payment or closing costs. Depending on the mortgage loan product you are seeking, lenders may also accept gift funds from close friends, employers, or domestic partner. Regardless of the donor, it's important to note that the relationship between the donor and the borrower is crucial in determining the acceptability and reliability of gift funds. Proper documentation and transparency are essential for a smooth mortgage approval process.

How to Use and Document Gift Money for your Mortgage?

For a mortgage application to be transparent and to meet lender criteria, gift funds must be documented. The lender must know that the money is a gift and not a loan.

Lenders typically require a gift letter, a document signed by the donor confirming that the funds are indeed a gift, not a loan, for a mortgage. The letter should include the donor's relationship to you, the amount gifted, and a statement affirming that no repayment is expected.

Proof of transfer of gift funds is crucial. This may include bank statements showing the withdrawal of funds from the donor's account and the deposit into your account.

Some lenders may require proof of the donor's ability to provide the gift funds. This could involve providing the donor's bank statements or other financial documentation. In this case the lender may want to ensure that the donor did not take a loan in order to fund this gift.

Gift funds can ease the financial strain of buying a house, however, you lender must know that the money you use for your down payment is yours, and not an undisclosed loan. The support of family and friends can make homeownership more attainable. The expert staff of loan officers at Standard Mortgage are here to help with your home-buying financing needs.