Gift funds in Real Estate: Who can help you?

gift funds in real estate


One of the more common misconceptions about home buying is that people think anyone can help them with “gift funds.” Unfortunately, this isn’t true. Even more so, it’s good to know that gift funds must be traced. This means your maw maw can’t pull some cash from under her mattress to help you with your down payment! 




What are gift funds? 

In simple terms, gift funds are funds that are given to you, the buyer, to help with your down payment or closing costs.

Now, before you start thinking you’ve hit the real estate jackpot, there are some rules to this generosity. The giver needs to provide a gift letter affirming that this isn’t a loan and that they’re basically your financial fairy godparent.




Who can give you gift funds? 

This answer will vary based on what type of loan you are using when purchasing a house. However, it’s safe to assume it can be one of the following people: a relative related by blood, marriage, adoption, or legal guardianship. A trust or estate with an acceptable donor (like one of the family members) can also provide you with this gift. 

Sometimes, a fiancee or domestic partner may also supply gift funds. This does not apply to every loan type, though. 

For other loan types, you may find that an employer, labor union, or charitable organization can gift you with this money, too. 

This needs to be discussed with your lender on who may help with gift funds! 




What is required by the generous donor? 

Not only does the donor need to provide a letter stating it’s not a loan, but they must also specify their relationship and the gift amount, provide their address and phone number, and sign the document. 

While it depends on the loan program being used, here is an idea of what may be required: proof of the bank account the money is coming from, like a bank statement, or proof of the transfer if sent directly to the title company. 




Last thoughts & advice

These benefaction bucks are helpful and allow many home buyers actually to make a purchase. But before you take money from anyone, talk to your mortgage lender. You cannot have your mom cut a check for 20k and drop that into your bank account with no questions asked! 

There is a protocol to follow when it comes to taking these contributions, and you don’t want to mess that up! 

Lastly, you are not allowed to receive a gift of money regarding investment property. You have to do that one all on your own. 

[IMPORTANT READING: How to Finance your First Home]




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