Can my parents gift me a down payment, or co-sign my mortgage?

A gift letter is a short signed document from the person gifting you money, confirming the amount, that it's a true gift with no expectation of repayment, and their relationship to you. Lenders and mortgage insurers require it because a down payment that's secretly a loan changes your real ability to carry the mortgage. Most lenders also want the money in your account well before closing, so ask your lender their specific timing.

Lenders generally require gifts to come from immediate family: a parent, grandparent, sibling, or spouse. A gift from a friend usually isn't accepted as a straight gift. If a friend wants to help financially, they'd typically need to go on the mortgage as a co-borrower instead, a very different commitment than gifting money.

These get mixed up often, and the differences matter:

• A co-borrower is on both the mortgage and the title, owns a share of the property, and is fully responsible for the debt, the same as the primary buyer.
• A guarantor signs the mortgage to guarantee the debt if you default, based on their income and credit, but usually isn't on title and doesn't own any part of the home.
• A co-signer is sometimes used to mean either of the above depending on the lender, so ask exactly what role they mean and get it in writing.

All three make someone legally responsible for missed payments, whether or not they own any part of the property.

Gifting addresses a savings shortfall. Co-signing or guaranteeing addresses an income or credit shortfall, when the buyer's own qualifying income isn't quite enough for the mortgage size. A parent might gift a down payment and still not need to co-sign, or the reverse: enough savings but not enough income to qualify alone.

If payments are missed, the co-signer or guarantor is legally on the hook, and it affects their own credit and borrowing, including with mortgage insurers who generally won't let someone be tied to more than one insured mortgage at a time. Going on title as a co-borrower adds a further layer, since it can affect the parent's own principal residence tax treatment, and unwinding it later means a further legal transaction to come off title. Anyone considering this should get independent legal advice before signing, separate from the buyer's own lawyer.