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) are able to 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 (JRyon@firsthome.com), to provide some general guidelines on gifts:
There is no limit to the total gifts funds you can receive or how many gifts you can receive from multiple eligible sources.
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) to the transaction.
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.
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 in order 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.