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Are you looking to buy a home? Affording the down payment can be challenging for first-time homebuyers. One popular solution is to use monetary gifts from family members. If you are able to receive gift money, there are a few things to consider before depositing that cash in the bank.

Underwriting

When first applying for a home loan, your lender will review your loan application, credit score, income, and assets to decide how risky it is to lend you money. This process is underwriting. Underwriters are reviewing your accounts to confirm that any large deposits other than average amounts (such as paychecks) are gifts and not additional loans.

The underwriting process tells your lender whether you can afford the loan you are applying for and what terms are the best option to ensure you can pay the loan back.

Cash Down Payment Gifts

As potential new homeowners research what they can afford, sometimes a relative may provide a cash gift to help in the process. A cash down payment gift is pretty straightforward, and there are only a few things your lender needs to approve it:

• A gift letter is a written statement that includes the amount of the gift and confirmation that it doesn’t have to be paid back.
• Evidence of the transfer of funds is shown through a withdrawal or deposit slip or a copy of the check.

Many newlyweds include “new home funds” on their registry. Does that mean everyone who contributes needs to sign a gift letter? Many guidelines differ based on the loan type. The best course of action is to check with your lender to see what they may consider a large deposit and what their recommendation may be.

Learn more about how Park Bank can help you finance your dream home, by talking to one of our mortgage experts.