I am a joint account holder on a savings account. Does the other account holder need to provide a gift letter for me to use money from the account for the down payment on a home?

By Harry Jensen, Trusted Mortgage Expert with 45+ Years of Experience

Edited by Michael Jensen, Mortgage and Finance Guru

Updated October 20, 2020

Lender policies can vary but if you are a joint holder on a bank account being used for the down payment to buy a home then lenders typically do not require a gift letter from the other account holder.

The reason most lenders do not require a gift letter in this scenario is because as an account holder you already have access to the funds and most accounts have rules that specify if both account holders are required to approve or sign off on how funds are used. This is because there are two types of joint bank accounts: "and" and "or" accounts.

With an "and" joint account the account holders are listed as "Account Holder 1" and "Account Holder 2" on the account documentation. With an "and" account, both account holders are required to sign checks or approve wire transfers from the account. So with an “and” joint account, you need permission from the other account holder to use funds for the down payment on a home.

With an "or" joint account the account holders are listed as "Account Holder 1" or "Account Holder 2". With an "or" joint account, only one account holder is required to sign checks or approve wire transfers. In this case, you do not need permission from the other account holder to use the money in the account, which makes it easier to access the funds.

Use ourDOWN PAYMENT CALCULATORto determine how much you need to put down to buy a home

You should understand what type of bank account you have before you apply for a mortgage because your joint account holder may be required to sign the check or approve the wire transfer for your down payment. You do not want to delay the mortgage process because you need to get permission from someone else to access the funds in the account.

Another point that you should be aware of is that it is helpful if your down payment funds are "seasoned" in the account for at least two months. Simply put, seasoning means that the money for your down payment is in your bank account for a certain period of time.

Most lenders require that you provide two months of bank statements when you apply for a mortgage. If the money you are using for your down payment has been in your bank account for more than two months -- so the funds appear on both monthly statements -- you should be good to move forward.

Review What Size Down Payment Do I Need to Buy a Home?

If the down payment funds have been in the account for less than two months and a large deposit appears on one of your statements, then most lenders require that you provide a letter of explanation that outlines the source of the funds. Lenders are required to verify that you did not receive a loan for your down payment and that the money comes from a legitimate and legal source.

Providing an explanation for your source of funds or a down payment gift letter are manageable requirements when you apply for a mortgage but the process goes more smoothly if you can avoid this additional documentation.

In closing, down payment policies vary by lender and mortgage program so it is important to understand the applicable guidelines before you select a lender and apply for the loan. We recommend that you contact multiple lenders in the table below to understand their down payment requirements. Shopping lenders is also the best way to save money on your mortgage.

Sources

"B3-4.2-01, Verification of Deposits and Assets."  Selling Guide: Fannie Mae Single Family.  Fannie Mae, April 25 2017.  Web.