Can Donor send gift for Down Payment at Closing table ?

15 Replies

Hello BP!!!

I have a buyers that run into a little problem with down payment . I just found out they will get a big portion of down payment as a gift from their relative ( 50k). I have a few questions i hope you guys can help me out here.

1.How do their relative gift the money to the buyer? ( Do they just go to the bank and fill out some gift letter ? ) 

2.How long is it going to take until buyers can use the money ? ( Does bank need donor's bank statements to verify ?)

3.I heard there is another way for donor to wire the gift at closing ? ( in case we need to close within a month or less ) 

For all the questions, Anything i need to know about IRS and gift ? I also heard donor have to pay for gift tax if more than 15k a year ? Correct me if im wrong. 

Thank you guys :) 

If they gift you $50k they'll need to complete a gift tax return, but it won't be taxable. 

@Hao Dinh

(This is only offered as a general discussion and not intended to be considered professional advice.)

The buyer’s relative/relatives can wire the funds to the buyer’s account or they can write a check to the buyer. There's no waiting period other than the time the receiving bank might hold the check until it clears.

Each person can "Gift" $15,000 a year without paying any gift tax. Say it’s coming from the buyer’s parents… If they are married, filing jointly, they each can give $15,000, or a total of $30k without any gift tax. The Giver’s would fill out a “Gift Tax” return, not the buyers. Also, I think there’s something like a one-time life-time gift amount that could be applicable so I would have the Giver’s speak to their accountant about how to file their taxes to save them money.

Next, the mortgage company will need proof of where the funds came from like, a copy of the relative’s bank statement or a copy of the cancelled check. They also might want the buyers to write a letter of explanation. (See link at end)

Your buyer’s Mortgage officer should be able to tell you exactly how to handle the situation. Have your buyers give him permission to speak with you.

In the mean-time here’s a link to a great little article on the subject.  The Rules for Documenting Mortgage Down Payment Gifts

Hope this helps.

Jennifer Ryan 

@Hao Dinh I need to offer some clarifications here. The specific rules for the gift funds here are COMPLETELY dependent on the loan type they are receiving. FHA has slightly different rules on this than Fannie Mae/Freddie Mac. VA and USDA too. if your customer is receiving a Texas grant or some other type of Texas Down Payment program it is critically important you speak with the lender before doing anything.  One wrong move here and they may not qualify.  You need to absolutely get with their lender to find out what needs to be done.

It is likely that a gift letter will be required.  If they are allowed to wire the funds to the title company that is the best action (meaning it will be less paperwork for everyone). They might be required to show their bank statements and so forth.  There are a few different things that could occur here. 

I will say that for every loan I have heard about for buying a primary home gift funds can only be used if they are buying their primary home.  If it is a commercial loan and they are buying an investment property that is different.  I couldn't tell if this was a primary home or investment property but I'm working under the assumption that it is a primary home.  If they are using a Fannie/Freddie type of loan on an investment property then gift funds are NOT allowed at all.

Gift funds would need to come from a blood relative:  Mother, Father, sibling, children, grandparents are all fine.  3rd cousin twice removed is not fine.  Money from anybody else will not work.

Hope that helps in some way.

@Andrew Postell They will use conventional 20% down. but mann good to know gift fund can only come from blood relative.I had no idea.thank you thank you. They was going to get it from a friend . Let me make sure im understanding this right .

A buyers using conventional loan 20% down to buy their primary home. A friend or 2 friends will write him a check  or transfer to buyers account total of 50k ( is this even doable?). Can buyers use that money for down payment ? Of course after his bank verify where is the money come from etc. 

I definitely need to talk to his lender more about this situation . I dont think buyers ever talk to his lender about this gift situation.  

@Hao Dinh sorry but this is completely not allowed.  The only way to work around this type of thing is that their friend would need to deposit that money into your customer's account and leave it there long enough to generate 2 monthly statements without the deposit being present.  That usually means leaving it in there somewhere between 61-90 days. Not knowing their profile I don't know if there is a need to see any bank statements over 2 months ago but it is entirely possible that it might be needed for some reason.  If the lender were to ever see that deposit the deal would be sunk.

Originally posted by @Hao Dinh :

@Andrew Postell They will use conventional 20% down. but mann good to know gift fund can only come from blood relative.I had no idea.thank you thank you. They was going to get it from a friend . Let me make sure im understanding this right .

A buyers using conventional loan 20% down to buy their primary home. A friend or 2 friends will write him a check  or transfer to buyers account total of 50k ( is this even doable?). Can buyers use that money for down payment ? Of course after his bank verify where is the money come from etc. 

I definitely need to talk to his lender more about this situation . I dont think buyers ever talk to his lender about this gift situation.  

 Your client should document these loans for repayment. There are lot better options for recent immigrants without credit to buy a primary until they build up credit to refi. My family has done these for 30 years in the Chinese/Taiwanese community.

@Hao Dinh even if you document the loans you may not use those funds to purchase a property with a Fannie Mae or Freddie Mac loan.  If your customer is receiving a loan of that type the funds from a person not related is not permitted.   There is an exception here and that is if that person is a fiance or domestic partner.  Other than those scenarios, it is not permitted even if documented.  

Originally posted by @Hao Dinh :

@Ronald Rohde Thank you Ronald for the suggestion. Can you explain a little bit more ?Im not sure im understanding

"document these loans" ? thanks

 @Andrew Postnell

I'm talking about a private lender for the debt and the friend loan for the DP. No Fannie or Freddie loan involved.

Documentation just means clarifying in writing who is lending what amounts for how long. Most casual friends just put an email that says, I loaned you $50k for you to buy a house. Pay me back when you re-finance or something...

Originally posted by @Andrew Postell :

@Hao Dinh even if you document the loans you may not use those funds to purchase a property with a Fannie Mae or Freddie Mac loan.  If your customer is receiving a loan of that type the funds from a person not related is not permitted.   There is an exception here and that is if that person is a fiance or domestic partner.  Other than those scenarios, it is not permitted even if documented.  

 Wasn't able to tag you Andrew, but I was referring to complete loan from private lender, no federal underwriting at all.

Donor does not need to be related by blood only. Can be by marriage 

"A gift can be provided by:

  • a relative, defined as the borrower’s spouse, child, or other dependent, or by any other individual who is related to the borrower by blood, marriage, adoption, or legal guardianship; or
  • a fiancé, fiancée, or domestic partner."

Depends on lender, some have overlays. Once with no overlays, the donor can write a cashier check payable to title company. Lender would just need image of the check and the gift letter to Clear to close. That's the easiest. Donor can do wire but you'd need wire receipt from title. Some titles now are asking for SSN and DOB from donors. So yes cashier check is the easiest way to do, general speaking.

Please make two calls:

To the Lender - does the loan type permit gifting and up to that amount.  What documentation do they require?  I had parents of a client gift $100k and the lender required documentation showing the funds in the parents' bank account - then wired to the buyer's account - then posted to the buyer's bank account.  The documentation was approved by the lender prior to the sending of the wire.

To the Title/Closing Agent - the agent requires proof of funds to close.  They will also need the documentation.  

Please do yourself a favor and avoid any conversation/remarks regarding tax law - other than they will want to check with their CPA regarding tax implications of gifting.  

Fun business, huh?