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Down payment

Down payment options: Gifts

By Shelley Sines

August 2016

If you’re just setting out to shop for your first home, you already know you’re going to be making a very important financial decision. So forget about starting your homebuying journey by looking for the perfect backyard or a living room with a view.

The down payment should be your first order of business, after you determine what price range to look in. Then you can figure how much money you’ll need to come up with in order to get a mortgage.

Let’s break it down.

Determining the down payment

The rule of thumb is to buy a home that’s no more than three times the amount of your annual salary. So if you make $50,000 a year, you should purchase a home for around $150,000.

For a purchase price of $150,000, you’d need:

  • $4,500 for a 3% down payment (this is the minimum amount many lenders may allow)
  • $15,000 for a 10% down payment
  • $30,000 for a 20% down payment

That’s a lot of savings to part ways with, no matter which option you go with. And you probably don’t want to be flat broke as soon as you sign your closing documents. Because how else will you buy that pergola you’ve had your eye on for your new patio? Plug your own numbers into our down payment calculator to see how different down payment levels will impact your savings.

If you have family or friends who are willing and able to help support you financially, you could hang on to more of your own savings and use gift funds as part or all of the down payment.

For example, here’s a typical scenario: You just graduated from college and landed a pretty good job. You want to focus on saving up for a house, so you (gulp) decide to move back in with your parents. 

Maybe your parents aren’t so thrilled about that prospect, though. I mean, of course they love you, but they just got you OUT of their house — and they’re kind of enjoying all the peace and quiet.

Luckily, there’s an option that could work for everyone involved. Your parents, being the kind and generous people that they are, could gift you cash that you could use for a down payment and closing costs so you can buy a home sooner. In fact, they can even gift you the entire amount of the down payment, and many lenders will allow it, depending on your credit score and the lender’s loan underwriting guidelines. (Keep in mind, some lenders require documentation of gift money, such as a signed letter from the donor and verification of transfer of funds. Check out Zillow’s post for more detailed info on this.)

Not a bad idea, right?

They get to keep their empty-nester freedom, and not worry about you using up all their hot water while you shower or eating that last piece of leftover pizza in the fridge that your dad had been looking forward to ALL day.

Related to This

Leigh Mattila •

Grateful to be a homeowner

Monda •

interesting for me a first time buyer at 26

Joshua •

Good idea

Karon Parker •

Definitely a lot of things to consider but the outcome will be a very much happy one

John Wilson •

We are glad to have this tool to prepare for our new home purchase thank you

Nell Hensley •

I found information there that was helpful. Thanks

Jacky Richard •

Good job always

Muaad Hussein •

I really love the way they brake down the processes

Jorge Cardona Ortiz •

Es importante esta información debido a que debes contar con muchos puntos de vista para ver lo que conlleva comprar una casa y ahorrar

Damien •

Great storyline to explain this topic.

Vallie Green •

Good info.

Ashley •

It helped about the down-payment and the Tax on them

Justin Salisbury •

It was helpful

Shelia Gibson •

Down payment and equity are very important.

Caroline •

Great informations

Sabrina Powe •

Very good Information!

Efthymia •

Nicely explained

Aslin Maravilla •

Good information.

Kalota •

Very good information!

Charletta morrow •

Good idea

Stara •

Great information

Demarco Mcdaniel •

For me any assistance is necessary

Stephen •

Great info

Alvaro Hurtado •

Interesting

Kaddour Yamani •

Good information

Norris H Matthews •

Very good information

Tyrone Colleton •

The information is very good.

Jasim Alawad •

Owning a home is a big achievement, also it’s family stability

Lance •

Good information

Ariel Delgado •

That is the very helpful information, thanks

Fran Laycock •

This was very helpful and answer a question I was going to ask.

Farrah Vaughn •

Very helpful info,

Berta •

Muy bueno el curso me sirvió de mucho para aprender porque no sabía nada acerca de compra

Thomas payne •

I’m ready to have my own home

Elisa V Rice •

Good

REXEL HURST •

VERY ENLIGHTENING FOR A FIRST TIMER LIKE MYSELF

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Shelley

Read more articles by Shelley
Shelley Sines has been writing for MGIC since she graduated from college in 2007. Currently raising a sweet little family with her husband in the suburbs of Milwaukee. Happiest when cooking or gardening. Competitive Scrabble player. Enthusiastic about road trips, wine, good TV.
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