Financing Your New Home: How To Use Gift Money as a Downpayment

One strategy used by people seeking to finance a home purchase is to use gift money for their down payment. This is allowed for certain types of loans. FHA, for example, will allow more gift money than conventional loans do.

But in all cases, the gift must be verified as a gift. The gift giver needs to confirm that they do not expect repayment, as borrowing money for a down payment is not allowed unless you are borrowing from your 401K.

The gift should be present when application is made for a mortgage. Be prepared to show evidence of the source of the gift. For example, if the gift money is in a savings account of your parents, bring a copy of the passbook. The lender may also ask to see the transfer of that money out of your parents’ account and into yours when the gift is actually made. Wait, however, for the lender to request this.

One new trend for gifts is a Bridal Registry where couples receive money into an account that can be used as their down payment.

Borrowing from 401K plans can be done without penalty so long as you repay the amount within a specific amount of time. You should consult your tax advisor for the specifics. One drawback is that your account will no longer grow as quickly, but if this is your only option, it may be wise to consider it.