How to Accept a Gift of Money for Your Down Payment

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This story originally appeared on Zillow.

It’s not uncommon for first-time home buyers to ask: “Can my mom and dad give me money to help me buy this house?”

The good news is yes, you can receive a gift from your parents to buy a house, but the way that you actually receive the gift is very important. Mom and dad can’t just leave money under your pillow like the Tooth Fairy did when you were younger.

The process of accepting a gift for your down payment isn’t complicated, and by following these simple rules, you can be sure that the underwriter who is reviewing your file will look at it with an approving eye.

Write a Gift Letter

If someone is going to be gifting you money to help you buy a house, you’ll first need a gift letter. The gift letter needs to be a short, sweet letter that is hand-signed by you and the person giving the gift. It needs to contain the following:

  • The relationship between the home buyer and the person giving the gift.
  • The amount of the gift.
  • The address of the home being purchased.
  • A statement that the money is a gift and not a loan that must be paid back.

Establish a Paper Trail

Next, you’ll need to create a paper trail. This is important because underwriters will look for where the money came from and where it went. In simple terms, they will look for proof that the money came from your parents’ account and went into yours.

Each situation will be slightly different, but be ready to provide paper proof of your parents’ account having money in it, money coming out of that account, a deposit into your account and proof that your account now has the money in it. Accuracy matters when creating this paper trail, so make sure each transaction is for the exact amount of the gift.

money gift down paymentWrite a Gift Letter and Use This Shortcut

Creating a paper trail correctly has proven to have its fair share of hassles. Getting copies of transactions is time-consuming, and underwriters seem to question every little thing in the process (“where exactly did the $10,000 transfer that I see coming into mom and dad’s account come from?”).

The good news is that there’s a shortcut when it comes to gift letters—one that makes the entire process easier.

Simply add one sentence to the letter that says: “Will wire the gift directly to escrow at time of closing.”

If you add this line to your gift letter, you can avoid all of the paper chasing that most underwriters will require. A day or two before closing, you can get wiring instructions from your escrow agent for mom and dad to wire the exact amount of the gift directly to the escrow company working on your transaction.

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Justin McHood is America’s Mortgage Commentator and lives in the Phoenix, Arizona area. You can find Justin on Facebook, Twitter, and LinkedIn. He is happy to answer any mortgage-related questions that you may have.

Note: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinion or position of Zillow.

  • AV

    I was recently pre-qualified for a 260K mortgage with 5% down and the loan officer specifically said that gifting from family members is NOT allowed for a 5% down mortgage loan. That it has to come from me. Is this accurate given the information you provided above?
    Thanks!

  • Johnny Walker

    No, not accurate