Question: Am I allowed to use a gift for the down payment on a home purchase? If so, are there any restrictions I should be aware of?
Answer: How else do you think many first-time homebuyers (second and third-timers too) can afford the steep cost of real estate in Northern VA and DC? Sometimes the gifts are just that, gifts from generous family members who want to help a loved one or child purchase a home, but many “donors” consider these contributions to be a way to invest in the local market.
The good news is that it’s easy for family members to help each other out with down payments and closing costs. I reached out to one of the area’s top lenders, Jake Ryon of First Home Mortgage ([email protected]), to provide some general guidelines on gifts:
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There is no limit to the total gift funds you can receive or how many gifts you can receive from multiple eligible sources.
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The gift must come from an eligible source. For most loan products, that means a relative or spouse. The donor cannot be an interested party (seller/developer/realtor/lender/title attorney) in the transaction.
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For Conventional or VA loans, we just need to show the borrower has received the gift funds. FHA requires “donor-ability”, meaning we need to look at the donor’s bank statements.
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For best practices, we typically recommend the donor wire the gift funds directly to the title company so there aren’t delays waiting for a check to clear.
Oftentimes a lender will require a signed letter from the gift donor stating the purpose of the funds and there may be a need to establish the source of the gift, but those details are circumstantial and it’s best to notify your lender up-front of any gifts you will receive so that they can advise you on the proper steps.
I have noticed a sharp increase in the number of buyers I’m meeting whose parents are gifting down payments to help their children purchase a home before Amazon (likely) announces its move into Crystal City/DC Metro. For those of you who don’t have the luxury of financial assistance helping you get to 20-25% down, there are plenty of great loan programs available that allow you to put 3-10% down and make home ownership much more accessible.
