Home Buying November 8, 2022

Everything You Need to Know About Gift a Down Payment

A home is one of the most significant assets you can own. Purchasing a home is a route to building wealth. Similarly, gifting a down payment to a loved one can help set them up. However, before you commit to a down payment gift, you must look at your current finances.

If you haven’t been able to save enough funds to purchase a home, there are other ways to go about it, such as borrowing from lenders to complete a down payment with gifted money. These, however, have a different set of rules as compared to traditional home loans.

In this blog, we’ll discuss all that you need to know about down payment gifts.

All About Gifting a Down Payment

There is no better way to jump-start your financial route to homeownership than by receiving gifted funds for a down payment. It’s common for parents, siblings, or grandparents to gift a down payment for significant milestones such as marriage or graduation. However, a down payment gift from parents comes with fewer tax implications.   

Who is Applicable for Gifting a Down Payment?

It all depends on the mortgage/ lender programs that you’ve opted for. Most loans will allow down payment gifts from blood relatives and godparents. However, others allow gifts from non-blood relatives and charitable organizations. The rules vary for each.

How Much Can Be Gifted?

It is one of the most common questions amongst borrowers who receive gift money from their parents for a down payment. The donor has to meet the requirements. However, factors such as borrowers’ credit can influence the amount gifted.  

In the 2022 tax year, parents together can gift their children up to $32k without the fear of activating the gift tax. Parents can gift a complete down payment in place of shares. In addition, these gifted funds sit well with mortgage lenders.

The Significance of Gifting a Down Payment As a Parent

Today there is immense pressure on children – with rising rent rates and student debt load, it is impossible to save up a good chunk for a down payment. Parents can support their children in building their equity earlier to enjoy long-term financial well-being. It is a far better alternative than signing your child’s mortgage. Why? Because if your child cannot make the payments, you’ll have to make them on their behalf.

Regardless of whether your child is financially stable currently, they might face a job loss or some adversities shortly. It will help them through their rough period. If you choose against it, there are chances that at that point, you might be close to retiring and won’t be able to help as much as you’d like.

How to Gift Your Child a Down Payment

1.      Keep Emotions Out of Financial Decisions

Emotional decision-making will get you into trouble. If you are firm about gifting a down payment to your child, check your finances and assess what you can realistically afford to give. Think strategically, keeping your future in mind. If you don’t have enough and are planning on withdrawing money from retirement, life insurance policy, or savings, it will only mean financial issues for you.

2.      Gift As Early As Possible

It is best to make early payments to your child. Preferably two to three months before they start applying for a mortgage. You can easily send the money to your child’s bank account or via check or wire transfer. It will allow the funds to season and support the verification process that will help identify that the money came from a valid source.

3.      Keep Your Paperwork Prearranged

Before using gift funds, it is necessary to submit a gift letter to your lender. It is a document that offers proper documentation defining the parties involved and confirms that the finds are indeed a gift. The letter will contain you and your spouse’s name (if applicable) along with the amount being gifted, contact information, and the purpose of the gift. You will also need to provide them with account statements that show the movement of funds.

Down Payment Gift Rules

There are a few things you should know when it comes to down payment gifts.


  • be straightforward about receiving a down payment gift.
  • Keep a record of the movement of funds.
  • Accept the down payment gift if it sits well with the requirements.
  • Ensure the total of gift funds is within the limit unless you wish to pay taxes on it.


  • inform your lender that you’ve received a down payment gift if they expect you to pay back the funds.
  • Forget to reveal to your lender the gift that you’ve already received.
  • Be so sure that all mortgage plans will allow down payment gifts.
  • Overlook the federal tax gift elimination restrictions.

We hope this blog answers all your questions regarding gifting a down payment and will allow you to gift yours easily. Additionally, it will help save you time and hassle.