It is well-known that buyers can use “gift funds” from a relative to help with the purchase of a home.
But, we want to again remind buyers to not deposit gift funds into their personal accounts.
Buyers should instead tell their “donors” (aka “gifters”) to hold on to their funds and to instead deposit all gifts straight to escrow once buyers are in contract.
Much Less Paperwork If Gift Funds Go Straight To Escrow
When gift funds are deposited straight to escrow, conventional and jumbo lenders do not require buyers to show a paper-trail of where the funds came from. Buyers only need to provide a signed gift letter from the donor noting the account the funds came out of.
Again – when gift funds go straight to escrow, conventional and jumbo lenders do not require bank statements or anything other than a gift letter from the donor.
If buyers deposit a donor’s funds into their personal bank accounts, they then have to prove that the donor has the “ability to gift” funds. This often involves copies of checks, bank statements or transaction histories from the donor to verify exactly where the funds came from.
This “paper-trailing” can often be a frustrating and time-consuming process for both buyers and donors when large sums are moved around from multiple accounts. Donors can also be wary of sending in their bank details for lender review.
We had two very frustrated buyers last week alone who had deposited gift funds into their personal accounts and who then had to go through very cumbersome paper-trailing processes.
If you are an agent and the topic of “gift funds” comes up in conversations with your clients, we recommend sharing this information in order to save them a lot of trouble.
Final note: FHA transactions require paper trails and “proof of ability to gift funds” no matter what.
