Gift Funds: Gifts Allowed For Down Payment
The Federal Housing Administration allows a home buyer to get gifts from a relative or family member for them to use for their down payment on their home purchase. FHA mortgage loan borrowers can get 100% of their down payment gifted by a relative or family member but the gifts needs to be sourced. A letter from the donor of the gift needs to be signed and 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.
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 where it shows the gift leaving the donor’s bank account and 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.
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 you are required to put a 5% down payment on a home purchase, the conventional mortgage lender may require that you have 3% of your 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. If you are home buyer who do have some time to purchase a home and are anticipating a gift, you can ask the donor to give you the gift funds as soon as possible. As long as the gift funds has been seasoned in your account for at least 60 days, those gift funds will be considered your 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.
Seasoning Of Funds
This is the best and ideal way of seasoning gift funds. Automated Underwriting System gives more weight if the funds are your own funds and do not favor gift funds. Automated Underwriting System favors assets for the mortgage loan borrower and 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.