First-Home Q&A · 4 of 13
When parents contribute to a down payment, the gift-funds paperwork is the thing to get right. Skip it and the approval stalls just before closing.
Why you cannot “just deposit it”
Banks and lenders trace the source of every dollar in a down payment. A large sum appearing in your account produces a request — a Letter of Explanation — to say whether it is salary, a loan or a gift.
A cash deposit in particular cannot be traced and is the first thing underwriting catches. If the money is from your parents, it has to carry the label “gift” and the documentation from the beginning, or the approval can stall days before closing.
The three documents lenders require
Gift letter — signed by your parents on the lender’s form, stating the money is a gift with no obligation to repay. Money you intend to pay back is a debt, not a gift, and it changes the underwriting.
Source of funds — a recent bank statement showing the amount sitting in your parents’ account. If a large deposit appeared in their account recently, the explanation can reach back a step further.
Paper trail — the record of the bank transfer from their account to yours, showing clearly who sent how much to whom.
If the money is coming from Korea
With parents in Korea, the documents become Korean bank statements and an international wire record. Some lenders want English translations or the exchange rate as of the transfer date, so ask the lender what format works before the wire goes out. After the fact, a wrong format cannot be undone and only costs time.
Timing matters
Arrange the gift before you make an offer, during pre-approval. A gift arriving just before closing leaves no time for the paperwork and pushes the schedule.
If your parents are helping, settle this with the lender before you start touring. Which lenders are comfortable with Korean-sourced funds is something I can help you find.
Questions
Common questions
Why can't my parents just transfer the money into my account?
Lenders trace the source of every dollar going into a down payment. A large sum appearing in your account triggers a request to explain whether it is salary, a loan or a gift. Cash deposits in particular cannot be traced and are the first thing underwriting flags. The money has to be labelled a gift and documented from the start.
What documents does a gift require?
Three. A gift letter on the lender's form, signed by your parents, stating the money is a gift with no obligation to repay; a recent bank statement showing the funds were in your parents' account (source of funds); and the record of the bank transfer from their account to yours (the paper trail).
Sources
Written by Diana Yeji Kim — REALTOR® at eXp Realty, serving Greater Boston in English, Korean, and Japanese.
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