Shopping for a home during the holidays has many advantages, one of them being the chance to receive a cash gift from relatives before you make your largest financial commitment! Since the down payment is a major deterrent for many homebuyers, especially first-time homebuyers, a holiday cash gift can be the deciding factor in whether you are prepared for a purchase. However, the last thing you want is to accept a cash gift in a way that will disqualify you from your loan program. Following these simple rules will ensure a smooth process when using your cash gift as a down payment:

Formal Gift Letter 

When you accept your cash gift, your first instinct may be to immediately deposit the money into your bank account. However, this would be cause for denial in most loan programs. Before even accepting your gift, you’ll need to produce a formal gift letter. This letter should be brief and only include the required information, without any unnecessary additions. Make sure to include the amount of the gift, the subject property address, the relationship between the person giving the gift and the person receiving it, and confirmation that this is, in fact, a gift rather than a loan that must be repaid. Though you may think it’s implied, you’ll also want to say that the purpose of the gift is helping underwrite your home purchase. Both parties must sign and date this letter. Typically, a formal gift letter is no longer than one page and does not need to be notarized.

Paper Trail  

Since, depending on mortgage loan program type, varying aspects are required in addition to gift letters, you’ll want to make sure to check with your loan officer for the specifics before drafting and compiling documentation. Note that although a wire transfer may seem like the easier path over a written check, the difficulty of maintaining a paper trail for a wire makes a physical check the better choice.

For conforming loan programs, you typically will only need your bank statement — dated after your gift letter — showing when you deposited the money into your account. To be safe, many folks make two photocopies of the check before making the deposit.

An FHA loan usually requires more of a paper trail, following the gift letter from its original location in the financial system to the newly deposited account. Since you typically would not ask someone who gives you a gift to provide you with bank statements, you may feel strange about asking that question. To offer more privacy to the gift-giver, suggest they send their documents directly to your loan officer through a secure server. It is important to note, however, that the documents must be full (not partial or missing pages) and not have any information blacked out or crossed through.

If you have questions about using a cash gift for a down payment or any other aspect of the homebuying process, contact Fairway Fort Lauderdale today! Our experienced loan officers are happy to assist you.