How to Use Gift Money for Your Down Payment

By Justin McHood

SEATTLE (Zillow) — It’s not uncommon for first-time homebuyers to ask: “Can my mom and dad give me money to help me buy this house?”

The good news is yes, you can get a gift from your parents to buy a house, but the way you actually get the gift is very important. Mom and dad can’t just leave money under your pillow like the Tooth Fairy.

The process of accepting a gift for your down payment isn’t complicated, and by following these simple rules you can be sure the underwriter reviewing your file will approve.

Write a gift letter

If someone is going to be giving you money to help you buy a house, you’ll first need a gift letter. The gift letter needs to be short, sweet and hand-signed by you and the person giving the gift. It needs to contain the following:

  • The relationship between the homebuyer and the person giving the gift.
  • The amount of the gift.
  • The address of the home being bought.
  • A statement that the money is a gift and not a loan that must be paid back.

Establish a paper trail

Next you’ll need to create a paper trail. This is important because underwriters will look for where the money came from and where it went. In simple terms, they will look for proof that the money came from your parents’ account and went into yours.

Each situation will be slightly different, but be ready to provide paper proof of your parents’ account having money in it, money coming out of that account, a deposit into your account and proof your account now has the money in it. Accuracy matters when creating this paper trail, so make sure each transaction is for the exact amount of the gift.

Write a gift letter and use this shortcut