To determine who funds a home purchase, review the purchase agreement, mortgage documents, and down payment sources. The buyer typically provides the down payment, while the mortgage lender finances the remaining balance. Third-party contributions, such as gift funds, must be documented with a written letter. Lenders require proof of the source of funds, including bank statements or gift letters, to ensure compliance with regulations like the TILA-RESPA Integrated Disclosure (TRID) rule. Additionally, the 1099-S form, which reports the sale price, helps identify the transaction parties.

This process is critical because misrepresenting funding sources can lead to legal or financial penalties. For example, the Consumer Financial Protection Bureau (CFPB) found that 5% of mortgage applications in 2020 involved suspicious activity linked to improper down payment sources, highlighting the need for rigorous verification. Data from the Federal Housing Finance Agency (FHFA) shows that 68% of conventional loans in 2022 required a minimum 20% down payment, while Federal Housing Administration (FHA) loans allowed as low as 3.5%. Lenders enforce these standards to mitigate default risks; a 2021 study by the Urban Institute found that loans with documented, stable down payments had a 30% lower default rate than those with ambiguous funding. The 1099-S form, filed by settlement agents, ensures transparency by recording the sale price and parties involved, with over 6.8 million forms filed in 2021 alone, per IRS data. These steps protect buyers, sellers, and lenders by preventing fraud and ensuring compliance with housing regulations.