Can you ask for down payment money as a Christmas gift?
My Christmas lists as a child typically included items like a velvet choker necklace (hey, it was the 1990s) or a mountain bike. Even the most outlandish thing I can recall asking for—a pet goat—was a lot more affordable than anything I really want or need these days.
If I wrote to Santa this year, my list would include pricier (and more practical) items like a new car or a kitchen renovation. For a lot of people, their list might include the ultimate wishlist item: a new house. But when you can't ask Santa, is it a faux pas to ask friends and family for money for a down payment?
How to Ask for Cash Gifts
Increasingly, the answer appears to be no. Technology has made it incredibly easy to ask for cash gifts in a way that's seamless for the giver and delightful for the recipient. What originally gained popularity among newlyweds—think sites like Honeyfund—has made its way into the real estate industry.
"I think it makes a lot of sense to ask for money instead of gifts for a down payment," says chartered financial analyst Lou Haverty of Financial Analyst Insider.
Haverty suggests limiting your requests to a smaller circle of close family and friends to avoid any perceived distaste and widening that circle on a case-by-case basis.
"Most of the people within this smaller circle would probably be very happy to help contribute to your down payment," he says.
Donation-seekers must also be aware of the ins and outs of the process when it comes to taxes and underwriting, Haverty says. The good news is that the tax limit for gifting is pretty liberal—both this year and for 2019, the limit is $15,000. That means that anyone who gives you a cash gift won't have to declare it to the IRS as long as it doesn't exceed $15,000 in a one-year period.
Do I need to report cash gifts to my underwriter?
Things get more complicated during the underwriting process: Depending on what lender you use, you may be up against more scrutiny for gifts, Haverty says. Large gifts will likely require what's known as a gift letter, a formal letter explaining the amount of the gift and that the giver does not intend to seek repayment.
"The big consideration is your debt to income ratio," Haverty says. "Lenders want to make sure you have the capacity to repay the mortgage based on your own recurring monthly income, so if you have a cash gift that exceeds 50 percent of your gross monthly income, chances are that your lender may ask for a gift letter to make sure that money represents a gift and not a loan.”
For example, if your very generous uncle chips in $5,000, and your gross monthly income is $4,000, the amount he gave you exceeds 50 percent—in fact, exceeds 100 percent—of your income.
Without a gift letter explaining that your uncle doesn't want you to repay that amount, an underwriter would see this money as a red flag. With proper documentation you can receive the gift comfortably without having to worry about an underwriter's questions while you wait for your mortgage origination.
"Underwriters are really just looking to capture those large gifts, like an $8,000 or $10,000 gift from a parent or grandparent. You shouldn't worry about the 10 or 15 friends and family who give you a $100 check," he says. "Small amounts aren't as big of a deal to underwriters as the single, larger amounts."
Haverty also suggests considering the timing of when you deposit the gifts. He notes there are differences based on your lender, but generally, underwriters only look at a few bank statements around the time of your home purchase, typically dating two to three months back, he says.
"If you save Christmas money, but don't plan to put a home deposit down until the spring, your lender may not look back as far as a December statement." However, Haverty recommends preparing a gift letter for any cash gift amount greater than half of your monthly gross income. "If you want to be safe, it's a good rule of thumb," he says.
Above all, whether it's comprised of gifts, savings, or a mix of both, Haverty recommends using a separate online bank account for a down payment fund.
"Keeping down payment money separate from your main checking account will make your life much easier when it comes time to deal with the mortgage lender's request for information," he says.
Sites That Make it Easy to Ask for Cash Gifts
With the holidays fast approaching, you might consider setting up a registry to solicit cash gifts from friends and family. You can also set one up any time of the year—think birthday, anniversary, graduation, or other milestones that might be a good opportunity to raise some funds for your new home.
Here are four popular, reputable online registries that make cash gifts easy and tasteful for close friends and family.
Zola is designed for newlyweds and has a traditional registry feature for tangible gifts. However, they also have a Honeymoon & Cash Funds section. We like how there’s an option for those who receive the cash gift to absorb the 2.5 percent credit card fee rather than the givers (but it's not mandatory if you'd prefer for the givers to pay a nominal 2.5 percent credit card fee).
Tendr bills itself as "the easiest, most elegant way to give and receive the gift of money for life's most important celebrations." We like this site because it's not tailored to a wedding—it's great for single homebuyers or those buying with a partner (but not a spouse). You won't feel awkward, and neither will those donating to your cause.
Feather the Nest is tailored specifically to real estate projects, perhaps making it a more palatable option for friends and family who might question what exactly you need this cash for (we all have that nosy aunt). Feather the Nest lets you set a timeline for your fundraising campaign and also easily links to social networks if you felt like widening the circle of potential gifters.
Zank You is popular in Europe and allows for international cash gifts. It's tailored for weddings, but if you have international friends and family, it may be a more viable option to ensure you receive funds securely. Like Zola, you can also choose who pays the service fee.