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When considering buying a home—especially for the first time—the upfront cost of a down payment can alarm homebuyers. However, down payments shouldn’t be intimidating. There are plenty of programs in place with low or no down payment options. Utilizing gift funds is another option available.
Gift funds are funds a homebuyer receives from an acceptable donor that typically help with the down payment, closing costs or financial reserves. They could be from an individual person, an organization or another party, and are given to the homebuyer without expectation of repayment. Depending on the home loan program, the criteria for an acceptable donor may differ.
If you’re interested in using gift funds to help with your home financing, here are some items to consider:
Conventional Gift Funds
With a conventional home loan, gift funds can come from a relative, such as a parent or legal guardian, spouse, child or dependent, grandparent, domestic partner or fiancé. Think of this as a gift from a loved one who’s helping you take the step to home ownership.
Keep in mind, the funds must be from a legal relative—loans from trusts, estates, real estate agents, etc. are not eligible. They’re also required to be, as the name states, a true gift with no expectation of repayment. Often, your mortgage lender will require documentation from both parties that the funds are a gift and will not be repaid.
FHA Gift Funds
With an FHA loan, gift funds can come from close friends, charitable organizations, government agencies or relatives as defined by the United States Department of Housing and Urban Development (HUD). By this definition, there’s a wider range of what qualifies as a relative, including not only those by blood, but also legal guardians, adopted and foster children, in-laws and stepparents, and stepsiblings. Similar to a conventional loan, funds cannot come from a trust, estate, agent or any party interested in the sale of the home.
USDA Gift Funds
On a USDA home loan, gift funds can come from relatives as defined by HUD, charitable organizations, government agencies or public entities. However, after the funds are received and documented, they’re considered the personal funds of the homebuyer.
VA Gift Funds
If you’re an eligible Veteran or your home loan is insured through the Department of Veterans Affairs (VA), gift funds may come from any donor that doesn’t have an affiliation with the builder, developer, real estate agent, or any interested party of the transaction. Just like the other loan programs, there should be no expectation of repayment. Funds may be used towards the down payment, closing costs, or financial reserves.
If you want to buy a home and are nervous about the upfront costs, an Evergreen Home Loans™ loan officer can talk through your options and help find the best plan to get you on your way to home ownership.
