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Buying a home is a significant milestone in one’s life, often requiring a substantial financial commitment. For many, a gift from a family member can make this dream a reality. However, there are specific requirements and considerations when using a gift as part of your down payment.

1. Source of the Gift

One of the first things to consider when using a gift to purchase a home is the source of the gift. You are required to provide a clear and documented source for the gift money. Typically, the gift should come from a family member but there are exceptions. Lenders want to ensure that the funds are not a loan, as this could affect your debt-to-income ratio and loan eligibility.

2. Gift Letter

A crucial step in the process is obtaining a gift letter. This includes essential information, such as the donor’s name, relationship to the homebuyer, the amount of the gift, and a statement confirming that the funds are indeed a gift and not a loan. Both the donor and the recipient will need to sign this letter.  We have a standard form to be used and can help facilitate electronic signatures.

3. Papertrail of Funds

We  require documentation to verify the source of the gifted funds.  The simplest way is to have the donor wire the funds to the title company at closing.  If the funds have already been deposited into the borrower’s account or it is on an FHA loan, we will need the donor’s bank statements.  We will help the donor and recipient throughout the process.

Using a gift to purchase a home can be a helpful financial boost for aspiring homeowners. However, navigating the requirements and ensuring a smooth transaction requires careful planning and adherence to loan policies. By taking these steps, you can make the most of this generous gesture and move closer to achieving your homeownership dreams.

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