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Using Gift Money for a Mortgage Down Payment

Monday, December 8, 2014 - Article by: MelissaStutes - Kama'aina Mortgage Group Inc. - NMLS# 1276471 - Message

Receiving money to cover the costs and down payment for a new home is extremely helpful. It can especially come in handy for newlyweds or those graduating from college and soon starting a career. These two milestones are when cash is generally gifted...and what better way to use someone else's money to leverage your future. It's the gift that keeps on giving and in good return.

There are steps to take to source the funds in your bank account. When lenders look at your assets, they check to make sure that the funds in your account do indeed belong to you. They want to make sure that any large deposits are gifts and not a loan from your family or friends.

Gift Letters

The lender will need the gift-giver to write a gift letter that states clearly the money is a gift and not a loan. Here is what your gift letter should include:

  • Donor's name, address and phone number
  • Donor's relationship with you (the receiver of the gift...aka the client)
  • The dollar amount of the gift
  • The date the funds were transferred
  • A statement from the donor that no repayment is expected
  • The donor's signature
  • The address of the property being purchased
  • A bank statement from the gift-giver (you may want to let your generous friend or relative know this upfront), showing proof of the donor's ability to gift the funds

Neither you nor the donor writes the letter. The letter will be provided by your the format accepted by the lender.

Sourcing Gift Funds

The lender will need to verify the source of any large deposit. What determines a large deposit? It's any single deposit that exceeds 50% of the total monthly qualifying income. The lender may also require clarification of smaller deposits if any deposits seem out of the ordinary. An example is if you keep a balance of $1,000 on a regular basis but all of a sudden you show a deposit of $6,000. Even though $6,000 may not be over 50% of your qualifying income, it may raise a red flag and warrant a gift letter.

Lenders must track gift funds as painstakingly as they track your other assets and income. If you know that you'll be getting a large financial gift to help with your down payment, be prepared to document it. Document the availability and transfer of gift funds with:

  • copy of donor check and the borrower deposit slip
  • copy of donor withdrawal slip and the borrower deposit slip
  • copy of donor check to the closing agent


  • settlement statement displaying receipt of the donor check

If the funds are not transferred prior to settlement, the lender will want documentation of the donor's gift funds in the form of a certified check, a cashier's check, or other official check.

Gift Tax

Gift tax is imposed on the donor, not the receiver. There are two main provisions of gift tax law that may enable the donor to have no tax liability for large gifts.

Annual Gift Exclusion Limit

  • the annual exclusion for 2014 and 2015 is $14,000

Lifetime Gift Tax Exclusion Limit

  • $5.34 million per person for 2014 (will go up $5.43 million per person in 2015)

For home buyers looking to buy in early 2015 with gift funds, keep in mind that as we close out 2014 and enter 2015, donors can give you funds under the 2014 annual exclusion on or before December 31, then double it under the 2015 annual exclusion on January 1 or later.

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