Jake's Lending Tip of the Week

Purchasing a home is an exciting milestone, but for many aspiring homeowners saving for a down payment can be a considerable challenge. Utilizing gift funds is potentially a great way to work through this challenge. There are specific requirements regarding who can gift funds, as well as how the funds need to be documented.

Who is an acceptable donor of gift funds?

• A relative, defined as the borrower’s spouse, child, or?other dependent, or by any other individual who is related to the borrower by blood, marriage, adoption, or legal guardianship.
• A non-relative that shares a familial relationship with the borrower defined as a domestic partner (or relative of the domestic partner), individual engaged to marry the borrower, former relative, or godparent.

What are the requirements for using gift funds for a down payment or closing costs?

• ?For all loan types a gift letter is required. This is a document signed by the gift donor and borrower stating that the funds are indeed a gift and not a loan. The letter typically includes the donor's contact information, the gift amount, and a statement confirming no expectation of repayment.
• The requirements for sourcing the donor funds differs by loan types:

*Conventional Financing: The funds do not need to be sourced, but proof of receipt of the funds at the title company is required. The funds cannot come from a trust.

?? *FHA and VA Financing: A bank statement from the gift donor requires showing the existence of the funds. The funds cannot come from a trust account.

• ?Cash is not an acceptable gift for any loan types. All funds must be in a source able location such as a bank account, brokerage account, CD, etc.

While gift funds could be a great option to cover down payment and closing costs, it is not a one size fits all for everyone. There may be tax implications for the gift donor. Mark sure your gift donor speaks with their accountant before making any decisions. Reach out to see if utilizing gift funds to assist you in purchasing a home is the right route for you!?