Using Gift Funds For Down Payment And Closing Costs

Using Gift Funds For Down Payment And Closing Costs

This BLOG On Using Gift Funds For Down Payment And Closing Costs Was UPDATED On January 2nd, 2018

The Federal Housing Administration allows a home buyer Using Gift Funds For Down Payment And Closing Costs on a home purchase. Using Gift Funds For Down Payment And Closing Costs is normally not viewed favorably but is allowed.

  • FHA borrowers can get 100% of their down payment gifted by a relative or family member
  • All gifts needs to be sourced
  • A letter from the donor of the gift needs to be signed
  • The verbiage needs to state that the person receiving the gift funds does not have to pay the gift back
  • Repayment of the gift after closing is not allowed

Using Gift Funds For Down Payment And Closing Costs: Gifts Cannot Be Loans

Gift money cannot be loans made to the person receiving the gift.

  • Mortgage lenders will require bank statements from the donor of the gift money
  • Bank Statement of the donor needs t0 show the gift leaving the donor’s bank account
  • Deposit of the recipient bank account and updated bank statement of the gift recipient is required
  • The donor also needs to provide 30 days of the donor’s prior bank statement history showing the seasoning of the gift funds
  • The mortgage lender also needs to see and document the funds being transferred or deposited to the mortgage loan borrower’s bank account

Gifts Are Allowed For VA Loans And USDA Loans

Cash is non-existent in the mortgage lending industry.  Any cash deposits with no paper trail cannot and will not be counted.

  • If the donor of the gift only has cash, the donor needs to deposit that cash in their bank account, let it season for 30 days, and then release the gift money to the person he or she is gifting the funds to
  • Cash in hand needs to be deposited in borrowers bank account and let it season for 60 days if the cash cannot be sourced

Gift Funds On Conventional Loans

Conventional loan programs do allow gift funds. However, depending on the mortgage lender, only a percentage of the down payment may be gifted.

  • For example, if a home buyer is required to put a 5% down payment on a home purchase, the conventional mortgage lender may require that 3% of it be own funds and the 2% may be gifted by a relative or family member

How To Avoid Gift Letter And Bank Statements From Donor

There are folks who do not feel comfortable in asking the donor of gift funds to sign a gift letter and asking them for 30 days bank statements.

  • Home buyers  who do have some time to purchase a home and are anticipating a gift can ask the donor to give them the gift funds as soon as possible
  • As long as the gift funds has been seasoned in borrowers account for at least 60 days, those gift funds will be considered own funds and no gift letter or any other documentation from the donor is required
  • Remember, that mortgage lenders only are concerned with 60 days of bank statements and any deposits beyond the 60 days will not require any sourcing

Seasoning Of Funds

This is the best and ideal way of seasoning gift funds.

  • Automated Underwriting System gives more weight if the funds are not gifted and own funds and do not favor gift funds
  • Automated Underwriting System favors assets for the mortgage loan borrower
  • The more assets the borrower has listed on their mortgage application, the better the chance for a DU or LP approve eligible per automated findings
  • If AUS requires reserves, reserves cannot be gifted
  • Reserves needs to be own funds

Qualifying For Mortgage With Direct Lender With No Overlays

Home Buyers who need to qualify for mortgage with direct lender with no lender overlays on government and conventional mortgage loans can contact The Gustan Cho Team at USA Mortgage at 262-716-8151 or email us at gcho@usa-mortgage.com. We are available 7 days a week, evenings, weekends, and holidays.

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