In the spirit of the giving season, here are some important things you should know about giving (or receiving) cash for a down payment.
Before giving or receiving the gift of a down payment, please be aware:
- – Receive the money as a check or wire transfer versus cash. The gift needs to have a paper trail.
- – You will need to provide a gift letter, including: the amount of gift, the relationship of the giver to the borrower, and that re-payment is not required.
- – Deposit the gift funds a few months prior to applying for the loan to avoid questions.
- – Make sure the gift giver knows the tax laws-cash gifts of over $15,000 are subject to taxes and must be reported to the IRS.
- – Depending on the loan type, there may be restrictions on how much of the down payment can be a gift. In many instances, gift funds are allowed for up to 100% of the down payment, but it does vary based on loan parameters. Federal Housing Authority (FHA) loans, popular among first time homebuyers do not have any limits on gift amounts to cover the down payment. Check with your lender to clarify.
It is always best to discuss any type of monetary gift for the purchase of a home with your attorney, tax preparer, financial planner and lender beforehand. If you have questions, feel free to contact us anytime.