3 Things You Need to Know About Receiving a Downpayment Gift

The standard downpayment for a house is 20%, but sometimes it's hard to come up with that amount of cash. While your parents may seem like a great way to get that cash, it could also complicate things for you. If you've read our blog, "5 Ways to Get Your Mortgage Unapproved," then you know that receiving a large amount of irregular income, such as a gift, could raise some red flags in the mortgage process. Your Lake of the Ozarks mortgage lender is here to help you understand how you can receive a "downpayment gift" without it negatively affecting your mortgage.

1. The Gift Giver.

A downpayment gift refers to money from a third party that has no involvement in the transaction and does not benefit from it. The giver of a downpayment gift must be a relative or have a family-like relationship with the receiver. The seller, real estate agent or lender is not allowed to provide a downpayment gift as it's considered an inducement for the receiver to make the purchase. Personal loans or funds derived by credit are not acceptable for a downpayment gift as they also require repayment. It is possible that a government agency, nonprofit organization or a charitable organization may provide a downpayment gift if they meet the lender's requirements.

2. Documenting the Gift.

Lenders will require documentation for any downpayment gift you receive. You need to provide a letter that includes the name of the donor, their relationship to you, the date and the amount of the gift and a statement to show that there is no expectation that the money will be paid back. The lender needs to know that this is truly a gift and not a personal loan. Both the giver and the receiver will need to sign the letter and additional documentation may be required. While there's no set time for when a gift can be received, the sooner, the better. When applying for a mortgage at the Lake of the Ozarks, lenders will want to see bank statements from the last 2-3 months. If the gift was added prior to that, you won't have to jump through as many hoops.

3. The Type of Loan.

The amount of money you are able to receive and use for a downpayment is dependent on the type of loan you're trying to acquire. Let's take a look at what's acceptable for conventional loans and for FHA or VA loans:

Conventional Loans

• As long as  your downpayment is 20% or more, the entire amount can be a gift. 
• If your downpayment is less than 20%, part of the amount must be your own money. The amount will vary from loan to loan, so talk to your lender about your unique situation.
• You can only use gift money on primary residences and second homes.

FHA or VA Loans

• All of your downpayment can be gift money. 
• If your credit score is between 580 and 619, at least 3.5% of the amount must be your own money. 
• You can only use gift money on primary residences. 

Keep in mind that these guidelines are subject to change, so be sure to check with your lender. 

If you have questions about receiving a gift for a downpayment during the process of home buying at the Lake of the Ozarks, give Lakelender Lasson a call at 573-746-7211. When it comes to your Lake of the Ozarks home financing needs, I'm here for you every step of the way, to answer any questions that you may have. I'll discuss financing options, offer competitive interest rates and back it up with the first class service you deserve!

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Michael Lasson

Sr. Residential Mortgage Lender

NMLS #: 493712

2265 Bagnell Dam Blvd, Suite B

PO Box 1449

Lake Ozark, MO 65049

Direct:  (573) 746-7211

Cell: (573) 216-7258

Fax:(573) 693-9141

Email:  mlasson@fsbfinancial.com

**The postings on this site are my own and do not necessarily represent First State Bank of St Charles’s positions, strategies, or opinions.