Looking for the Perfect Christmas Gift?

Airpods, flannel jammies, and baby Yoda. They are among the most popular gifts for the holidays this year. But you know what would really turn someone’s head? The gift of a new home. 

No, you don’t have to spring for the whole $285,000—that’s the median list price of homes across the country. A down payment, which is typically the biggest deterrent for someone trying to buy their first place, will do nicely.

If you’re thinking about gifting someone with a down payment for the holidays, or anytime of the year, you want to pay attention to the specific rules involved to get the loan through underwriting and keep from incurring tax consequences for yourself.

Types of loans

Down payment gift funds can be used for a wide variety of mortgage loans, include FHA, VA, and conventional loans. The buyer will want to be sure to check with their lender first to make sure the types of loans they are considering are good to go. 

Is it really a gift? 

Rules for most types of loans are explicit about the intent of the funds. Funds must really be a gift, with no expectation to pay them back at any time. “The money must be a true gift, not a disguised loan, and it must be documented properly through financial statements and a gift letter,” said NerdWallet. “If the gift is really a loan that you have to pay back, lenders won’t accept it.” 

Gift letter details

The gift letter is a critical element of any donated down payment. Do it wrong (or don’t do it at all), and your funds—and the mortgage—may be denied. 

The buyer’s lender should be able to provide you with a gift letter template, which will include: a space for your name, address and phone number; your relationship to the buyer; amount of the gift; details about the property; a statement that expressly lays out that these are gift funds with no repayment requirement; and your signature. 

You will likely also need to include information about how the buyer received the funds.

“It’s important to understand that the gift letter in itself may not be enough evidence for the mortgage company,” said Quicken Loans. The lender will likely want to verify the funds “by asking for copies of the withdrawal and deposit slips, or something similar.”

Who can donate

Some loans allow donations from almost anyone, so long as the donor doesn’t have a financial interest in the property. That means people like the seller or real estate agent can’t gift the buyer the down payment. “Loans insured by the Federal Housing Administration allow for family, friends…employer or others” to gift the the down payment,” said NerdWallet. The FHA is ‘not concerned’ with the origin of the gift, “according to the Department of Housing and Urban Development, as long as it’s not from someone who has a stake in the home sale.”

How much can you donate?

Technically, you can donate as much as you want, depending on the type of loan. With an FHA loan, the whole down payment can come from gift funds, whether that’s $5,000 or $50,000. But...the gift tax kicks in after $15,000. That’s the annual limit for 2019. A married couple who file jointly can donate up to $30,000 without triggering the gift tax. There are no tax consequences to the person receiving the gift funds, no matter the amount. 


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