Home Buyers Gift Advantage
Buy Your House With a Gift
Homeownership is, for many Americans, the only path toward accumulating wealth while living on a middle class income. Thomas Jefferson understood this at the founding of our nation, and envisioned a citizenry made up of small landholders as the backbone of our republic, and our democracy.
Homeownership is still held up as the best way for poor and lower middle class people to elevate their economic station, but the path to homeownership can be challenging for many.
Coming up with the down payment can be the hardest part of buying a home. This is especially true for first-time buyers and buyers who are trying to get back on their feet after a period of financial hardship.
Thankfully, it is possible to secure a loan to buy a home using a gift as a partial or complete down payment.
However, there are some rules involved that make it a little more complicated than simply presenting your 20% (or lower amount with some programs), and then signing the paperwork.
Where Can the Gifted Part of My Down Payment Come From?
A significant chunk of first-time homebuyers in the United States are taking advantage of their ability to use a gift to cover some or all of their down payment.
You can use a gift of money from a parent, grandparent, sibling, or other immediate family member, or from a spouse, domestic partner, or in some cases, a fiancé.
Restrictions on Using Gifted Money for Your Down Payment
Exactly how much of your down payment can come from a gift or gifts depends upon the type of loan you are trying to take out. If you are trying to land a conventional mortgage backed by Freddie Mac or Fannie Mae, then all of your down payment can come from gifts, but only if your down payment is equal to or greater than 20% of the total purchase amount.
If your total down payment is not at least 20%, then some of the down payment money must come from your own earnings. The mandatory split between gift and personal funds in this case depends on the type of loan.
If you are taking out a loan backed by either the Veterans Administration or the Federal Housing Authority, then the rules are different. For FHA and VA loans, the entire down payment can come from gifts, but only if your credit score is above 620. If your credit is lower than that, you will have to come up with 3.5% of the purchase price (less than a quarter of a conventional down payment) yourself.
Note: in both cases – conventional and government-backed loans – gift-based down payments are only accepted when the residence being purchased is your primary residence, and not an investment property.
Buy Your House With a Gift
Homeownership is desirable for most of us – it’s also desirable overall for us as a society, and has been for a very long time. For this reason, passing wealth from one generation to the next in the form of gifts to be used to purchase property or a home is a time-honored American tradition.
Contact our team to today see if you can apply a gift to cover some or all of the down payment on your first home.