Many people who want to purchase a home often cannot do so because they cannot afford the down payment. It can take buyers years and years to save up for a down payment, but there is another option: gifted down payments. This means that part or all of the down payment is made as a gift on behalf of the borrowers to the lender. There are some specific rules that this gifted down payment must abide by, however
In order to be considered a gift, the funds must be given by a third party who doesn’t benefit from the sale and who isn’t involved in the transition. Additionally, the funds must be given by a relative or have some sort of familial relationship with the borrower. The lender must verify the source of the gift and ensure that the gift really is a gift. Personal loans that are subject to repayment are not considered a bona fide gift. Government agencies, charitable organizations, and non-profits can all provide gifts if it is verified that the gift is from a third party without a vested interest.
Funds that are gifted for a down payment must be documented with the date, name of the donor, and
Many lenders will require the borrower to make a contribution to the down payment. However, Fannie Mae loans with more than twenty percent don’t have a minimum borrower contribution. If the down payment is less than twenty percent and involves a 2-4 unit home, the borrower must contribute. This contribution could be anywhere from 3% to 5%. Freddie Mac requires a 5% minimum borrower contribution for those who have a down payment less than 20%.