Gifts Still Make Great Down-Payments

Home buyers can still receive and use gifts to supplement their down payments even with FHA loans. It's just important to be informed about the rules and restrictions.

1. The gifted funds must be "seasoned," which means the buyer must be sitting in the buyers bank account for several months. Donors cannot just give the buyers the down payment money the day of the mortgage closing.
2. The money must be documented with a gift letter. This letter specifies the donor name and relationship to the home buyer, how much money was gifted and where it came from. Friends giving gift money must actually prove they have had a long-standing relationship with the home loan borrower.  The reasoning for this is so the lenders verify that the down payment money comes with no strings attached and was legally obtained. 
3. There is no limit on the amount of money that can be gifted from a friend or relative, and when it comes to taxes, the buyer will never be taxed on the received gift, and as long as the money does not exceed $13,000 (based on 2009 IRS rules) the donor will not have to pay a gift tax either.