How to account for parents loan for downpayment?

The most important thing in your question is a single word, and it is "loaning." Before you say that to a lender, understand what it does. Mortgage lenders treat family down payment money as one of two completely different things, and the difference decides your approval. A gift is money with no expectation of repayment. It is documented with a gift letter, it does not appear in your debt-to-income ratio, and it is the standard, easy path. A loan is a debt. It creates a monthly obligation, that obligation counts against your debt-to-income, and it reduces how much house you qualify for. It is not improper, but it costs you buying power. Here is the part that catches people. If you call it a gift on paper but you and your parents actually intend repayment, and that comes out, a lender can treat it as undisclosed debt. That is a serious problem, potentially a loan-level misrepresentation, and it can blow up your approval late in the process when you have no time to fix it. So the first thing to do is not paperwork. It is a conversation with your parents to decide which one this actually is, honestly, and then to document it as that thing. If it is a gift, here is the mechanic. Your parents sign a gift letter. It states their names, address, phone, their relationship to you, the amount, and explicitly that no repayment is expected. Your loan officer will provide the form. Then the money has to be traceable. Lenders want to see the donor's bank statement showing the withdrawal and your statement showing the deposit, matching amounts. Do not have them hand you cash, and do not have them split it into several deposits, which looks like structuring and creates more questions, not fewer. One rule to ask your loan officer about specifically: on a primary residence, if you are putting down 20 percent or more, the entire down payment can generally come from gift funds. If you are putting down less than 20 percent, most programs require you to contribute a minimum amount of your own money, commonly cited as 5 percent. That varies by program and occupancy, so get your specific answer from your loan officer rather than from a forum, including this one. On your tax question, and this is the piece I most want to correct, because people get it backwards: You, as the recipient, do not pay income tax on a gift. Receiving a gift is not taxable income to you. Any federal gift tax obligation falls on the giver, not the receiver. And even then, exceeding the annual exclusion usually just means your parents file a gift tax return, not that they owe tax, because it draws against a large lifetime exemption. The exclusion amounts are indexed and change, so have your parents confirm the current figures with a CPA rather than relying on a number they read somewhere. If it truly is a loan and your parents want it repaid, that is fine and legitimate. Do it properly: a written promissory note with terms, and tell your loan officer up front. It will be counted in your ratios. Trying to hide it is the only version of this that goes badly. There is a middle path worth mentioning. Some families structure it as a gift for the down payment, with a private understanding that the child will help out later, or with the parents gifting an amount each year going forward. Talk to a CPA about that rather than improvising, because how it is documented matters. One last thing. Do this early. Move the money, document it, and let it sit before you are in contract. Large deposits landing three weeks before closing trigger the exact paper chase you want to avoid. I am a real estate professional, not a lender or a CPA. Your loan officer should confirm the gift rules for your specific program, and a CPA should handle the gift tax side for your parents. My name is Zoltan Peresztegi and I work in Los Angeles, the South Bay and on the Palos Verdes Peninsula, so I am not your Portland agent. If you want an introduction to a strong buyer's agent there, or a loan officer who will structure this cleanly from the start, message me and I will connect you. And it is a real advantage to have family able to help. Just get the paperwork right on the front end. Zoltan

Kelsey, this is a question for your accountant and mortgage broker. Each person's situation is different. Keith Jean-Pierre Managing Principal The Dapper Agents Real Estate Operations in ALL 50 States

Lenders usually require it to be documented either as a formal loan with repayment terms or as a gift with a signed gift letter. Undocumented funds can delay or deny approval.

In most cases, you cannot easily get a loan for a downpayment unless you ask the lender ahead of time and the lender approves it based on the type of loan you are seeking. A loan means it needs to be paid back, your parents may need to "gift" you the funds vs "loan" you the funds. Ask your lender, they will tell you. Then its up to your parental relationship how this works.

You might want to look into the Freddie Mac Home Possible Mortgage in regards to your question. sf.freddiemac.com/homepossible

These are referred to as "gift funds" - but it sounds like this is actually a loan from your parents. When you meet with a loan officer they will ask what loans you have out, and the lender will take into account the loans you already have (e.g. a car loan), this will factor in to how much a lender can get you approved for. If your parents are going to gift you the money, you want to put that into your bank account 3 months prior to buying a house, or you may need a letter from your parents stating that you are not required to pay it back - so the lender can allow you to use this money.