Use Gift Funds when buying a house

How to Use Gift Funds when Buying a Home

Show Notes

It is very common to use “gift funds” to help with the down payment and closing costs when buying your first home.

When someone cares enough about you to give you money to buy a home, you don’t want to inconvenience them during the process.

In this episode, Josh and I explore the most important things you need to know if you are receiving a gift for your home purchase, including acceptable gift sources, and how to properly document those funds to avoid last minute stress and headaches.

Documentation requirements may vary depending on the type of loan you are using,  so it’s important to let your loan officer know as soon as possible that you intend to use gift funds as early in the process as possible.

Links and Resources

Below you will find links Gift Funds guidelines for Fannie Mae and Freddie Mac Conventional, as well as FHA, government insured financing.  While gift funds are allowed with VA and USDA loans, because there is no down payment required, it’s less common.

Gift Fund Guidelines

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About the Author

Scott Schang

A 20+ year veteran of the Mortgage and Real Estate industry, I am passionate about educating and empowering consumers. I have been writing about consumer protection issues and making sense of complicated real estate and mortgage topics on this website since 2007

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  • Virginia says:

    I had a question about gift funds. I am in the middle of buying a house. I had a family member gift me $ money to help with closing costs. They sent it through paypal to make sure i receive it faster, it was deposited in my bsnk account totally within 2 days. That was over two weeks ago and underwriting is having a difficult time with usuing the paypal method, difficult for them to follow the source. I sent them all the information they want. Looking back, i should of had them just write ne a check, which would take 7 to 10 business days to deposit. But looking back i should of have my sister send me the check. Dont know what to do, closing is in limbo now.

    • Hi Virginia, the best way to use gift funds is to have the person giving you the gift wire the money directly to the escrow company.

      The issue you’re having here is that gift funds need to be sourced and seasoned if they are deposited into your bank account. That means the money needs to be in your account for 60 days, or 2 bank statements.

      Money sent through paypal is going to be difficult to “source” – meaning, your sister now has to prove that she did not borrow the money, which may require her having to produce 2 months of bank statements showing no large or unusual deposits for the past 2 statements.

      These guidelines will also change slightly depending on what type of mortgage you’re using to buy the home.

      If it is possible, you can still have a relative wire the money to escrow so you can close, and you can return that paypal payment to your sister once your loan is closed.

      This could and should have all been avoided if your loan officer did a better job of communicating with you from the beginning.

      It sounds like you’re almost at the closing table so it’s too late to fix that part. I would have a conversation with your loan officer or ask to speak to the underwriter to find out exactly what they will and will not allow so you don’t lose any more days waiting. You cannot afford any more miscommunication – talk to someone higher up at the lender if you can!

      If the seller is going to work with you, it’s not going to be that difficult to fix this, but I do get that it’s stressful.

      Hope this helps?

  • Howard Perry says:

    Hi Scott, Thanks for sharing ????hope to another deal with you

  • Jacki Moya says:

    Great information, thank you!