Summary: The down payment is often the biggest out-of-pocket expense for home buyers in Washington State, and it usually has to be paid upfront at the closing. In this article, we will take a look at down payment gifts in Washington State, and how you can use them when buying a home.
A down payment is a big amount of money that you will need to come up with in order to secure a mortgage to buy a home. But there are ways to reduce your upfront investment when purchasing a house, and down payment gifts are one such strategy.
Let’s start with a definition. A down payment “gift” is simply money that is provided by a third party to a person who is buying a home. The money is used for a down payment and/or closing cost expenses. These days, many different mortgage programs in Washington State allow for down payment gifts, and that includes FHA as well as conventional home loans.
Not every source of money will qualify as a down-payment gift. In general, borrowers should make sure the funds are coming from an approved donor source allowed by the mortgage program they are using. This is an important detail to discuss early in the home-buying process, because lenders will want to confirm that the gift funds meet program guidelines before they can be applied toward the transaction.
The big takeaway: When buying a house in Washington, you might not have to pay the entire down payment out of your own pocket. Depending on the type of loan you’re using, you could use a financial gift from a family member or other approved source to cover some or all of your down payment.
Home buyers in Washington State are sometimes unaware of down payment gifts. As a result, they might wrongfully assume that homeownership is beyond their financial reach, simply because of the upfront investment. We have published this article in order to increase awareness for this flexible financing option.
If you use a down payment gift when purchasing a home in Washington State, you’ll have to get a letter from the person who is donating the funds to you. This is true for both conventional and FHA mortgage loans.
A down payment gift letter simply states that the donor does not expect any form of repayment. In other words, it verifies that the money being given to the borrower is truly a gift and not a loan.
The letter can be short, simple, and to the point. At a minimum, it should include the donor’s name and relationship to the borrower, the amount of money being provided, and the fact that they don’t expect any kind of repayment. This last item is the most important component of a Washington State down-payment gift letter.
In addition to the donor letter, lenders may also review documentation showing the source and movement of the gift funds. The purpose is to confirm that the money is truly a gift and that it is being handled in a way that meets loan requirements. Buyers who plan to use gift money should be prepared for some additional paperwork and should work closely with their lender to make sure the funds are documented properly.
There are many hardworking, responsible people in Washington who are excellent candidates for a mortgage loan — but with one exception. They don’t have enough money saved up for a large down payment.
Fortunately, there are ways to overcome this obstacle. We just talked about one of them. Down payment gifts give Washington State home buyers a way to buy a house with less money out of pocket.
In addition, some mortgage programs offer lower down payments than others. The Federal Housing Administration (FHA) loan program is one example. When using the FHA program, a home buyer can put down as little as 3.5% of the purchase price (as explained here).
Some conventional mortgage loans allow down payments as low as 3%. Additionally, eligible military members and veterans can use the VA program, which offers 100% financing.
The point is, there are ways to overcome the perceived hurdle of a down payment when buying a home in Washington State. By using a mortgage financing option that allows for a lower down payment (and/or by using gift money provided by a third party), home buyers can greatly reduce their out-of-pocket expenses.
Whether you have more questions about down payments or are ready to apply for a mortgage, we can help. Sammamish Mortgage is a local, family-owned company based in Bellevue, Washington. We serve the entire state, as well as Oregon, Colorado, California, and Idaho. We have been helping borrowers secure a variety of mortgage programs since 1992. including our Diamond Homebuyer Program, Cash Buyer Program, and Bridge Loans. Visit our website to get an instant rate quote or to use our online mortgage calculator. Please reach out to us if you are ready to get pre-approved for a mortgage.
A down payment gift is money given by an approved third party to help a home buyer in Washington State pay for a down payment and, in some cases, closing costs.
Yes. Many mortgage programs in Washington State allow home buyers to use gift funds toward the down payment and sometimes closing costs.
Yes. FHA loans commonly allow down payment gifts, as long as the funds come from an approved source and the lender’s documentation requirements are met.
Yes. Many conventional loan programs in Washington State allow gift funds for down payment and eligible closing costs, subject to lender and loan guidelines.
The donor must usually be an approved source under the mortgage program being used, such as a family member or another acceptable party allowed by the lender.
Yes. Lenders generally require a gift letter showing who provided the funds, the donor’s relationship to the borrower, the amount of the gift, and that no repayment is expected.
At a minimum, it should include the donor’s name, the donor’s relationship to the borrower, the amount of the gift, and a clear statement that the money is a gift and does not have to be repaid.
No. Gift funds used for a mortgage down payment must be a true gift, not a loan, and the donor must state that repayment is not expected.
Yes. Gift funds can reduce the amount of personal savings a buyer needs to bring to closing, especially when combined with a low-down-payment mortgage program.
Low-down-payment mortgage programs can help. FHA loans may allow a 3.5% down payment, some conventional loans may allow 3% down, and eligible VA borrowers may qualify for no down payment.
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