Good news! You can use a gift of money to assist you in making a down payment toward your dream home. But while you don’t want to look this gift horse in the mouth, there are things to know before accepting.
Both Fannie Mae and FHA loan programs allow you to receive a gift as a down payment from a person related to you by blood, marriage, or adoption. (Yes, you can tap “the Bank of Mom and Dad!”)
However, the gift must be accompanied by documentation. The first such document is the gift letter. This shows that the gifted funds are being used to purchase a specific property, and that the donor does not expect you to repay the gift.
The second is proof that your donor is able to give the gift. This paper trail includes the source of the funds, such as a bank account statement demonstrating the donor has the money to give.
More important, it should show an average balance in the account over several recent months. This is to demonstrate to the lender that the funds were there and were not deposited from an undocumented source only to be withdrawn shortly after being given to you.
There may be other sources of down payment assistance, but it’s best to check with your mortgage pro before counting on them. One important point to note: your seller is not able to provide you with down payment assistance, although he or she can offer you seller credits toward your closing costs.