This BLOG On HUD Gift Funds Mortgage Lending Guidelines On Home Purchase Was PUBLISHED On February 28th, 2020
We all know the American dream is owning your own home.
- This can be easier said than done
- Besides the qualifying credit score and enough income to qualify assets for down payment can be the hardest obstacle of obtaining home ownership
- With the home values on the rise across our great country, borrowers now need to save more to purchase their homes
- At Gustan Cho Associates, we have seen an uptick in the amount of our clients who are using GIFT FUNDS
In this article, we will cover and discuss HUD Gift Funds Mortgage Lending Guidelines On Home Purchase.
Gift Funds For Down Payment On Home Purchase
What is a gift fund?
- Per the FHA 4000.1 Handbook, a gift fund refers to the contributions of equity or cash with no expectation of repayment
- A gift fun is simply money or equity given to you by an acceptable Source where you are not required to pay them back
Who Can Offer Gift Funds To Home Buyers
Who can give you gift funds?
Per HUD Gift Funds Guidelines, gifted funds may only be provided to you from an acceptable source. For FHA Loans the acceptable source is very specific.
See below: HUD gift funds may be provided by the following:
- The borrower’s family member
- The borrower’s employer or labor union
- A charitable organization
- A close friend with a clearly defined and documented interest in the borrower (this WILL require documentation)
- A public entity or government agency that has a program providing home ownership assistance for:
- Income families
- First-time home buyers
Documents Required Per Gift Funds Guidelines
Documentation is required to utilize get funds?
The lender must obtain a gift letter signed and dated by the donor. The gift letter provided by lender needs to include the following information:
- The donor’s full name, address, and telephone number
- The donor’s relationship to the borrower
- The dollar amount for the amount of the gift
- A written statement that no repayment is required
Donor Needs To Complete Gift Funds Letter Provided By Lenders
Gift Letter Provided By Lender For Donors
The loan officer should be able to provide borrowers with a template for a gift letter. Borrowers will then sign that and take it to the donor and have that filled out.
When do you actually receive the gift?
This can be a pain in the butt.
- Sourcing mortgage fund is a requirement and is part of the USA Patriot Act of 2001 (Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism, HISTORY LESSON, PATRIOT ACT is an acronym) to cut down on money laundering
- We must verify and document where all of your funds came from
- That being said, there is a very specific process for sourcing gift funds
If the funds have already entered the borrowers account, the lender must obtain the donor’s bank statement showing their withdrawal and evidence of the deposit into the borrower’s account. In short, we must document the funds leaving the donor’s account and entering into the borrower’s account.
How Lenders Process Gift Funds
If the gift funds are not deposited into the borrower’s account, the lender must obtain verified by requesting the following:
- certified check
- money order
- cashier’s check
- wire transfer
- or some other official check along with the bank statement showing this withdra
- Meaning the donor can give a certified check to the borrower directly
- We must document those funds leaving the donor’s account
- The donor can give a certified check written out to the title company
- But the lender must verify where those funds came from
Importance Of Documents In The Mortgage Process
Just like anything in the mortgage process, documentation is key.
- The lender must be able to prove the gift funds came from an acceptable donor and from an acceptable source
- Gustan Cho Associates are experts in the use of gift funds, so please contact us with any questions
- If you need any clarification on acceptable sources or acceptable donors, please call Mike Gracz at 630-659-7644 or text for faster response
- Or send an email to firstname.lastname@example.org.
Gift Funds In Form Of Gift Of Equity
What if the gift is in the form of equity?
- This is called a gift of equity. For more details please see our GIFT OF EQUITY BLOG
- One key aspect of a gift of equity is equity may only be given to the borrower from a FAMILY MEMBER
- So,the home would need to be sold from one family member to another
- The documentation is very similar to gift funds when utilizing a gift of equity
Below is the documentation required:
The lender must obtain a gift letter signed by both parties, the donor and the borrower.
In that letter the following information must be present;
- The donor’s name, address,and telephone number
- The Donut relationship to the borrower
- The dollar amount of the gift of equity
- A statement that no repayment will be required
More and more borrowers seem to be utilizing gift funds from family members to close on their dream house. As we know there has been a trend of Americans saving less and less, and home values on the rise, creating the surge in gift fun use. We are here to help with any related mortgage questions 7 days a week. Feel free to call or email us anytime!