Merry Christmas, homebuyer! Don’t cash Mom and Dad’s check yet! Your loan could be denied if the money isn’t carefully documented.

Why? Gifts can cause confusion. Is your parents’ money a gift or a loan? Unless the terms are clearly defined, don’t mix the gift with your own funds. It alters your bank statements and raises your income both of which could muddy your financial picture.

Lenders require a paper trail for all monies, so no phone deposits. They also limit the size of gifts in relationship to the total down payment. Some loan programs require the borrower to contribute at least 3% to 5% of the down payment if the down payment is less than 20%, while other programs allow the entire down payment to be supplied by a gift.

To avoid questions, provide a certified down-payment gift letter or sign an affidavit that explain:

• The amount of the gift, accompanied by a corresponding cashier’s check, including a photocopy of the check
• The name and address of the gift-giver and relationship the gift-giver has to the homebuyer
• The purpose of the gift – to be used only as a down payment on the subject property, complete with the property’s address
• A statement confirming that the gift is not a loan, and does not need to be repaid
• Signatures of the borrower and the gift-giver

If you’re planning to use a gift as part or all of your down payment, ask your lender how to meet all the appropriate requirements.