Did you know that you can use money that is a gift for a down payment on a mortgage in some instances? Maybe you are a parent and have thought about giving a financial gift to a child. Many first time home buyers are looking to their parents for down payment money when they are ready to purchase their first home. If you want to use money that has been gifted to you as a down payment or money towards closing costs you must know the guidelines so the money can be used.

First of all, it doesn’t matter who is gifting you the money, but the amount of the gift needs to be documented in a letter. The letter must include specific criteria. Definitions must be provided for the names of the parties giving and receiving the gift, as well as the relationship between the two parties. Should the relationship be outside that of a family member, a letter of explanation will be required that justifies the gift. The letter will also require the donor’s account information (bank name and address, account number, and bank manager confirmation of assets) to prove the money they are giving is actually coming from their own personal checking or savings account – and not from someone who is attempting to effect the sale of the property (such as the owner of the property). Make a copy of the front and back of the gift check after it has cleared the giver’s account.

As the receiver of the gift money, you should be prepared to provide proof of receipt or deposit of the money – a bank statement is sufficient. This documents the paper trail for underwriters. There have been some fraudulent cases so underwriters are requiring strict paper trails for gift funds.

An alternative to copies of the gift check and updated bank statements would be for the donor to wire the funds to the settlement agent to be held in escrow. For some – particularly families in remote locations – this is an easier solution. The closing agent can then provide a letter stating the funds are held in escrow for the home buyer. However, the donor would still need to provide a copy of the gift letter documenting the intended gift.


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