Legal Limit a Relative Can Gift as a Down Payment on a Home

What is the legal limit a relative can give me as a gift as a down payment on a home I want to purchase?

3 Answers

There is no legal limit to the amount that you can receive in gift funds.  If your relative wanted to gift you the entire purchase price, they are free to do so.

Lenders will want to verify that the funds are indeed a gift and not a loan.  The family member who provides you with the funds will be required to sign a gift letter stating that there is no repayment required.  The lender may also want to verify that the funds that came from your relative were seasoned.  They might require account statements for several months to verify that your relative held these funds during that last 60-90 days.

One thing to be aware of is that the gift funds may carry a tax consequence.  Please consult with a tax advisor, but currently I believe you are able to receive up to $12,000 from an individual before you would have to worry about the gift being taxable.

Legally, as long as the federal gift tax rules are followed, there is no limit.  However, if you are applying for a mortgage, most banks want to see the money for down payment to be from the buyer and a gift will only be considered if it is not most of the required money needed to close (down payment plus closing costs).  Each bank is different and will have a different limit but, from my experience, the higher your credit worthiness and/or the higher the total percentage of down payment, the higher the gift percentage the bank will consider for approval.  I've seen houses bought with gifts from 9% to 100% of the total money needed to close, with the higher percentages on the lower priced houses.  All have been with high credit score (over 720).

There is no legal limit to how much a relative may give you as a gift to use as down payment for a home; although there are issues of which you and the donor need to be aware.

Different loans have different guidelines as to whether gifts may be used for down payment and under what conditions. For example conventional loans to purchase an investment property do not allow the purchaser to use a gift for any of the down payment. Some conventional loans may not allow all of an owner occupant's down payment to come from a gift except under certain circumstances. The loan may require the buyer to contribute a certain portion of their own funds towards the purchase. Check with your lender or mortgage broker to find out the guidelines and documentation requirements on using gifts for the down payment on the specific type of loan for which you are applying.

Taxable events. The donor needs to be aware of the possible tax consequences of the gift. The recipient of the gift does not incur a tax liability for receiving a gift, but the donor may be responsible for gift tax. A gift of up to $13,000 (after 1/1/2009) is excluded from gift tax. Over that amount the donor is required to file IRS Form 709. It is most likely that the donor will not have to pay any tax on gifts over $13,000, but over the donor's lifetime the total amount of gifts over the annual excluded amount will be deducted from the donor's estate tax credit. The donor should contact a tax professional to see how, or if, a giving the gift will affect their taxes and estate.

Here is a link to IRS Publication 950, Introduction to Estate and Gift Taxes: