None of my family has money and they aren’t risk takers at all, so I’m starting from the bottom and trying to make something out of the generous gift from my grandparents.

You may not transfer, sell, or gift an asset you own personally to your IRA. 

We had never owned a home in Spain as such but a few days ago we found out that we wouldn't be eligible even if the house was given to us as a gift (the house was registered under my mother in law's name) but we sold it prior to movingwhat do we do now?

I would also suggest speaking to an income tax professional as the IRS might not consider this an arms length transaction and subject to gift tax

Most banks would require your parents to write a letter that the money is a gift to you, ie not a loan. 

A $100.00 gift card could have worked wonders.

If you're doing 4 at once you might be able to get a discount or financing... and if you buy from big box store you can always buy discounted gift cards for a discount ..

Another way to get around this it to add a name onto title after the transaction with a non-arms-length transaction such as a gift.

We have sent them little Christmas gifts each year, gift cards for a date.

@Zoisa Marsden I believe he 3% down has to come from you or possibly from a family member as a gift....with a signed affidavit that the gift is not a loan ( no investor would sign that form obvious reasons).