Down payments can be a big hurdle when buying a home. In fact, nearly a third of first-time buyers received money from friends or relatives to source their down payment.
Are you considering a similar move? If so, proceed with caution. Though getting gift money is quite common, it also comes with some unique challenges.
Here’s what you should do to make sure your down payment gift goes off without a hitch:
- Know the rules and regulations around your loan. Different mortgage products have different rules for gift money. The allowed amount may be limited, or the funds may need to be deposited in a certain time frame in order to qualify. We can discuss these specifics together.
- Make it clear that you’re not expected to repay the money. If you’re taking on more debt, it will impact your home loan finances. To prove that it’s a gift instead of a loan, you’ll need to ask whoever is giving you the money to write a gift letter, asserting that it does not need to be repaid.
- Keep it in your account for a few months beforehand. Ideally, you should get the gift money a few months before you apply for your mortgage. Anything beyond 60 days out should work, and you’ll avoid an unusual deposit during the loan process.
- Understand the tax rules around gift money. You won’t have to pay taxes on the money, but depending on how much you’re given, the gift-giver might have to. Make sure they’re aware of these implications before moving forward.
If you’re one of the many buyers considering using gift money for your down payment, reach out today so we can walk through the process.