MORTGAGE DOWN PAYMENT GIFTS: WHAT YOU SHOULD KNOW

There’s no place like home. So, when someone is generous enough to give you a down payment gift to help you buy that home, it easily tops the “best present ever” list! But, if you’ve received a down payment gift (or are planning to give one), there are some things you should know.

Please note: These general guidelines are for reference only. We recommend that you check with a licensed accountant to find out how these apply to you and your situation.

NOT EVERYONE CAN GIVE A DOWN PAYMENT GIFT

Down payment gifts often come from parents and grandparents, and those are the kinds of down payment gifts that are A-OK with the government. The United States Department of Housing and Urban Development requires that down payment gifts for conventional loans come from a relative, spouse, child, or anyone else related by blood, marriage, adoption, or legal guardianship.

A GIFT LETTER IS REQUIRED

According to Bankrate, the giver must write a formal letter explaining who the giver is, how much the down payment gift amount is, where the money’s coming from, that the giver doesn’t expect to be repaid, when the funds were transferred, and the giver’s contact information. Both the giver and recipient need to sign the letter.

In addition to this letter, there are other documents that will need to be submitted. Check with your mortgage lender to obtain a list of these documents.

GIFT MONEY IS TAXED AFTER A CERTAIN AMOUNT

The gift recipient isn’t liable for any taxes regardless of the gift amount. On the other hand, the person gifting the money can be liable for a gift tax if the amount is higher than their corresponding annual exclusion limit. As a rule of thumb, as of 2021, married parents that file taxes jointly can gift a maximum of $30,000 per child (as a down payment gift or for any other purposes), while the amount goes down to $15,000 for single filers. Any amount over that will trigger a gift tax.

SEASONED MONEY IS A GOOD IDEA

If you receive a down payment gift, it’s wise to wait a month or two before starting your home buying journey. Experts say that lenders want proof that money has been in the buyer’s account for a substantial amount of time—that is called seasoned money.

Have you secured some funding and are ready to learn more about the ins and outs of buying a home? Our realtors have the expertise to get your questions answered and get you on the way to buying your dream home. Give us a call at (608) 957-2683 today!