You have received a large cash gift, and you plan to buy a real estate investment, but can gift funds be used for an investment property purchase?
If you are pursuing a loan with a conventional bank loan, the answer is no; gift funds cannot be used on a property that is solely for investment purposes. This includes cash gifts, or gifts of equity.
However, there are no laws preventing the use of gift funds or gift equity for the purchase of an investment property not using a conventional loan. This is a guideline set up by federally backed Freddie Mac and Fannie Mae.
If you are obtaining a conventional bank loan, gift funds can be used to purchase a primary or secondary residence. That means that if you are planning on residing in the property, even part-time, you may be able to use gift funds. If you will not live there, gift funds cannot be used.
It isn’t this simple, though. Even in cases where gift funds can be used for a real estate purchase, there are guidelines on where the funds came from. For instance, the funds must come from an acceptable donor source. This includes:
- A relative (by blood, marriage, legal guardianship, or adoption)
- Domestic partner
To confirm where the donor funds came from, the bank will require a gift letter and will verify the funds with a copy of the donor’s check and deposit slip, donor’s withdrawal and recipients deposit receipts, or by the use of an official type of check, like a cashier’s check.