Many families like to gift cash at Christmas, especially to those close family members who anticipate having a large expense upcoming in the new year, like a wedding, a vacation or a home purchase. Still others gift cash because it’s easy and loved by all. If you are thinking about purchasing a new home next year you might be looking for creative ways to raise your down payment amount, and saving your gifted Christmas cash is one great way to do it!
What are the rules regarding using cash as a down payment towards your home purchase?
Cash is king, even in the mortgage world – with a few strings attached. When you apply for a mortgage, your lender will generally require that you submit copies of your past few months’ bank statements and you’ll need to be able to account for any large deposits that cannot be traced back to an employer, etc. If you receive cash for Christmas and hold onto it in your savings account until next July, you may not need to account for it to your lender, but it’s always best to be prepared rather than caught surprised when going to purchase a home.
Different loan types have different rules regarding using cash gifts as a down payment or as a partial down payment. In a conventional mortgage loan, if you are putting down more than 20% then gifts may account for as much as 100% of your down payment. If you are putting down less than 20% with a conventional mortgage, your down payment must be a mix of gifted money and “your own money”. If you’re applying for an FHA or VA loan, the amount of down payment that can be comprised of gifted money will depend a bit on your credit score. If your credit score is below 620, there may be some restrictions that will require a portion of your down payment to be from “your own money, versus gifted money. If your credit score is above 620, you likely can use gifted money as 100% of your down payment. Additionally, with an FHA or VA loan, you likely can only use gifted money as a down payment on property that will be your primary residence.
If you were gifted money several months before you apply for a mortgage loan, you’ll want to speak with an experienced mortgage professional about your specific circumstances and your loan type in order to determine what will be considered by the loan underwriter as “gifted money” versus “your own money”.
Additionally, lending laws can (and do) change. So if you are thinking about purchasing a home next year and are anticipating receiving cash this holiday season, you may want to think about saving that money away to use towards your down payment. The generosity of the giving season may just get you into the home of your dreams in less time than you think!