Using Gift Funds For Down Payment
If you've had trouble saving for a down payment on your own, getting gift funds from an eligible person can be one way to help you buy a home.
You can use gift funds with Conventional, FHA, VA, and USDA loans. Each program treats gift funds differently
Unlike FHA, which allows for a “close friend”, the gift requirements for Fannie are below and do not include “close friend” as an approved donor. Freddie is essentially the same as Fannie.
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A gift can be provided by:
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a relative, defined as the borrower’s spouse, child, or another dependent, or by any other individual who is related to the borrower by blood, marriage, adoption, or legal guardianship; or
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a fiancé, fiancée, or domestic partner.
The donor may not be, or have any affiliation with, the builder, the developer, the real estate agent, or any other interested party to the transaction.
Gift of Equity
If you're purchasing a home from a person who meets the criteria of an eligible person who could typically gift a gift, then a gift of equity is possible.
A gift of equity is essentially where the seller (or donor) is giving you a portion of the equity to go towards your down payment requirement. This can be as little as 5% on a conventional loan, but can be as high as 20% or more! If you're using FHA for financing, typically the gift of equity will need to be 15% or more due to a rule FHA has regarding purchasing a property from an "interested party", or what is sometimes referred to as a non-arms length transaction.
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