Even people with great jobs can have a hard time buying a home. They may have the income to qualify for a loan but not the cash for the down payment. In the good old days of the housing boom, zero down loan programs were plentiful and easy to come by. But those days are gone. Ever since the mortgage market meltdown, lenders are requiring borrowers to have significant skin in the game, namely a hefty down payment.

So what's an upwardly mobile but cash poor person to do?

Many are turning to their families for help in the form of gifted funds. Although there are several requirements around gift funds, they are allowed as long as they meet the minimum cash investment for the borrower's particular loan program.

Here are some of the rules governing the use of gift funds (courtesy of Betsy Hanrahan of PHH Home Loans):

  • Typically the gift donor must be a relative (i.e., parents, uncles, grandparents, cousins). Fiancees are also acceptable.
  • The gift donor must complete and sign a gift letter and provide verification of the asset (i.e., bank statement) used for the gift.
  • Proof of the transfer /deposit of funds into the borrower's account must be verified prior to closing.
  • For FHA and VA loans, all the funds needed for closing may be a gift.
  • For conventional loans the borrower must have at least 5% of their own money into the transaction, unless they are putting at least 20% down. With a down payment of 20% or more, all of the funds for the closing may be a gift
  • Gift funds are not allowed on investment properties.

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