For many people, the dream of homeownership comes with a gift - a financial one. In many cases, people buying a first or subsequent home receive a financial gift from a family member that makes the down payment possible.
But if you’re thinking about getting a cash gift from someone for a down payment, here’s what you need to know.
Down Payment Gifts: What to Know if You Use One
Not just anyone can give you a down payment gift. In fact, you can only use a cash gift from an immediate relative, so it must come from:
a person you’re engaged to marry
If you do use a gift, you’ll most likely have to provide very detailed documentation - called a “gift letter” - to your lender to ensure that it’s not money you’re going to owe someone later. Your gift letter needs to state the name of the donor, how you’re related, the date they’re giving you the gift, and the amount of the gift.
There’s a catch, too: if you’re putting down 20 percent or more, the whole sum can be gifted money. However, if the down payment is less than 20 percent, you’ll have to come up with some of it on your own.
You have to file a gift tax return, too, although there’s a three-year statute of limitations on it for most people. The statute of limitations doesn’t start until you file your next return, however. And if you don’t file a gift tax return within the statute of limitations, the IRS can levy a gift tax, penalties and interest against you - even years after you received it.
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