The ‘I Do’ Home Fund: How Young Couples are Using Wedding Gifts for Down Payments

October 18, 2023 - 5 min read

Buying a home at any age can be challenging. Higher mortgage rates and low inventory have made the path to homeownership a difficult journey. This can be especially true for young first-time homebuyers.

Still, first-time buyers now represent 50% of all home buyers in the U.S. – up from 45% last year and a significant jump from 37% in 2021. Of the 50%, nearly half of them are millennials.

Continue reading as we delve deeper into some of the ways millennial and Gen Z homebuyers are overcoming the number one obstacle – coming up with the down payment.

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The top challenges homebuyers face in today’s market

There are a number of hurdles facing today’s homebuyers.

From elevated home prices, low inventory, higher mortgage rates, sufficient credit scores and adequate income, to the number one obstacle: coming up with the down payment.

In our current economic climate, saving the money needed for the down payment on a house is no easy task, even more so for young first-timers. In fact, according to a recent survey, 34% of homebuyers said that lacking funds for a down payment was their biggest challenge.

First-time homebuyer down payment requirements

The lower your down payment, the easier it is to come up with it.

Many would-be homebuyers believe that a 20% down payment is required to buy a home. Fortunately, this isn’t so. USDA and VA loans offer zero down payment. Certain conventional loans allow for a down payment of just 3%, and FHA loans require just 3.5% down.

Even though most lenders offer mortgage programs with down payment requirements of 5% or less, the average down payment for first-time homebuyers in 2022 was 6 percent. On a $300,000 house, that’s $18,000, and that doesn’t include any amounts for closing costs or escrow impounds.

With the current state of the housing market and inflation being at near-record highs, this can be a lot of money for anyone. This is even more the case if you are a young first-time buyer.

How homebuyers are coming up with down payment funds

With affordability being strained, first-time buyers are finding creative ways to come up with their down payment, such as pooling funds from multiple resources.

60% of first-time buyers are using at least two sources to come up with their down payment — savings and gifts from family or friends.

An increasingly popular trend among newlyweds is to forgo the traditional gift registry and instead, ask for cash gifts that can go towards a downpayment. A survey of those who have created a wedding registry in the last two years, says 85% of newlyweds preferred to receive money for a down payment on a home rather than a physical gift.

Adding a home buying cash gift option to a wedding registry is an excellent method for young would-be homebuyers to crowdfund a down payment for their new home. This is a great way for friends and family to celebrate such an important moment in their lives, while helping them achieve homeownership.

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Using wedding gift money for your down payment

If you plan to use gift money as a wedding present towards the down payment of a home, it’s important to remember a few things.

As of 2023, technically, there’s only one type of mortgage loan that allows for gift funds received as a wedding gift. A conventional loan backed by Freddie Mac allows wedding gift down payment funds.

According to Freddie Mac guidelines:

Gift funds received as a wedding gift from unrelated persons and/or related persons are an eligible source of funds for a mortgage secured by primary residence. The gift funds must be on deposit in the borrower’s depository account within 90 days of the date of the marriage license or certificate.

You’ll need to supply a copy of the marriage license or certificate, as well as verification of the gift funds in your depository account.

You may be able to use cash wedding gifts for your down payment with other types of mortgage, but you’ll have to get the money into your bank as soon as possible. For most mortgage loan programs, you’ll need to show the funds have been in your account for a certain period of time.

Typically, the time needed ranges from 30 – 90 days. While some programs allow for seasoning of just 30 days, most lenders want to see your down payment funds have “seasoned” for at least 60 days.

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What else you should know about down payment gift funds

If you plan to use gift money for a down payment on a home, you’ll have to follow some rules and guidelines imposed by the mortgage lender and/or government agency insuring the loan.

Fortunately, most mortgage programs allow for down payment gift funds when purchasing a home if the home will be used as your primary residence. You’ll want to check with your lender for specific gift fund guidelines based on the loan program for which you’re applying.

Some common gift money rules include:

Most gift funds need to be sourced. Lenders usually need to see where the gift money is coming from. Acceptable sources typically include family members, but they can sometimes include friends with whom you’ve had a long-standing relationship.

Gift money cannot be a loan. The funds must be considered a true gift with no expectation of being paid back. You’ll need to be clear with your lender and confirm that the money is truly a gift. A sudden infusion of cash in your bank account without a traceable source will leave lenders suspicious and, possibly even result in your loan being denied.

Gift letters are required. Depending on the type of loan you are pursuing, there are slightly different gift letter rules. Gift letters detail the identity of the person or persons gifting the funds, the amount of the gift, signatures of interested parties, and that there is no expectation of repayment. Your lender will provide the gift letter, and any specific instructions you need to follow.

Bank statements may be required. Your lender may also require bank statements, or other asset account statements, from the gift donor(s). They may ask to see the donor’s bank statements to show there are sufficient funds in their account to make the gift. They may also ask for a deposit slip or balance statement from your account to show the down payment funds have been transferred.

Gift funds may have tax implications. As of 2023, family members can collectively gift up to $17,000, or $34,000, from parents who file their taxes jointly. Beyond these amounts, they can choose to either pay taxes on the gift or claim the money as part of their $12.06 million lifetime exemption for gift taxes. Always consult with a qualified CPA or accountant for gifting with and without tax implications.

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Younger buyers are changing the landscape of home buying

While challenging, the dream of homeownership is still very much alive, and today’s generation of first-time home buyers is swapping traditional wedding gifts for gift money for down payments.

That doesn’t mean buying a home won’t come without challenges. With higher mortgage rates expected to continue to put pressure on buyers’ budgets through the end of this year, coupled with continued low for-sale inventory, competition for housing will remain strong and first-time buyers will need to continue getting creative to buy a home this year.

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Craig Berry
Authored By: Craig Berry
The Mortgage Reports contributor
With over 20 years in mortgage banking, Craig Berry has helped thousands achieve their homeownership goals.
Aleksandra Kadzielawski
Reviewed By: Aleksandra Kadzielawski
The Mortgage Reports Editor
Aleksandra is the Senior Editor at The Mortgage Reports, where she brings 10 years of experience in mortgage and real estate to help consumers discover the right path to homeownership. Aleksandra received a bachelor’s degree in finance from DePaul University. She is also a licensed real estate agent in Arizona and a member of the National Association of Realtors (NAR).