What are Gift Funds?
Help with a down payment for purchasing a home may come in the form of gift funds. Someone, typically a family member can give you money to put toward your Glossary Term: down payment. Saving up for a down payment can be one of the most challenging parts of buying a house. So gift funds combined with your existing savings—can help you build the down payment required for your new home.
It’s important to note that the money must be a gift, not a loan. You will need to have a signed “gift letter” from the donor that says you do not have to repay it. Otherwise, your lender will assume this money is a loan and will add it to the debts included in your Glossary Term: debt-to-income ratio
You and the person offering the gift funds should talk with a tax professional so you are both fully informed about the details and possible tax implications. And you’ll want to talk through the details of the use of gift funds with your lender. The procedure is very specific, so you’ll need to make sure you understand what steps you and your benefactor should follow.
In addition to gifts funds, there are many ways to build your down payment; see Saving for a down payment for some suggestions. Also, some community-based organizations may be able to help you. For more information about approved down payment assistance programs, check with the U.S. Department of Housing and Urban Development, visit http://www.hud.gov/buying/localbuying.cfm, or talk to a mortgage loan officer.