Coming up with the funds for a down payment is often the biggest obstacle to owning a home. Some buyers, especially first-time buyers, may use a gift from family to help cover the costs. This is a popular solution; however, if this is something you are considering, make sure you know all of the rules ahead of time.

Typically, for a conventional mortgage, if you put down 20 percent or more it can all be from a gift. If your down payment is less than 20 percent, part of it must be your own money, although this varies from lender to lender. In most situations, gift money can only be used on primary residences.

Shelly Starr with Supreme Lendings says that it is important for buyers to know that a gift needs to come from an immediate family member.

“It used to be that funds from a friend or maybe an aunt would be accepted,” she said. “However, lenders have tightened up their policies on this, and now, gift money must come from a close family member, like a parent or grandparent.”

Next, be prepared to show documentation of where the funds came from. Your mortgage lender can provide you with a gift letter that the donor will need to sign and date. Among other requirements, the letter must include the donor’s name, the gift amount, his/her relationship to the borrower and a statement that the money is a gift and not a loan. Other information may be required, so check with your lender to be sure.

“In addition to the letter, buyers need to show a paper trail and documentation of where the funds came from,” said Starr. “In addition to other documents, the mortgage company is going to want bank statements from the donor showing that they had the money to give. Many donors don’t want to hand over personal information, especially for a loan that is not their own. The buyer should make sure they are up front about this and tell the donor ahead of time that they may have to provide some financial information.”

This can be avoided if the funds are received at least two months before you start the mortgage process. At this point, the money is “seasoned” and is no longer considered a gift. In this case, no documentation is required. If you know you are going to be using gift money as part of your down payment, you may want to make sure it is in your account sooner, rather than later. This will allow you to avoid the headache of sourcing the funds.

If you are not able to get funds in the bank before the 60-day mark, Starr says you should talk to your mortgage professional to understand what information is needed.

“I suggest making copies of everything before it is deposited,” she said. “Make copies for yourself and your lender. That way you don’t have to go back and retrace all of the steps. Also, loan officers only want information that is relevant to the situation, so before the donor starts supplying personal information, check with your lender to find out exactly what is needed.”

If you need more information, visit the Greater Lansing Association of REALTORS® website at www.lansing-realestate.com  to find a listing of mortgage professionals in the area.