Using Gift Funds Mortgage Guidelines To Purchase Home

Gustan Cho Associates
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This BLOG On Using Gift Funds Mortgage Guidelines To Purchase Home Was PUBLISHED On May 22nd, 2019

Using Gift Funds Mortgage Guidelines is similar for all loan programs.

  • Per Using Gift Funds Mortgage Guidelines, home buyers can get a gift by a family member for the down payment and/or closing costs on a home purchase
  • However, the gift can only be a gift and not a loan
  • The donor needs to sign a gift letter stating the gift is not a loan and will not be repaid back
  • This gift letter is provided by the lender
  • Both the donor of the gift funds and the recipient needs to sign the gift letter

In this blog, we will discuss Using Gift Funds Mortgage Guidelines.

Costs Associated With Home Purchase

Most home buyers can easily afford the proposed monthly housing payment on a home purchase. However, coming up with the down payment often becomes an issue.

There are two costs required on home purchase:

  • Down Payment
  • Closing Costs
Using Gift Funds Mortgage Guidelines
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Sellers Concessions And Lender Credit To Cover Closing Costs

Most home buyers do not have to worry about closing costs.

  • The best way of covering closing costs on a home purchase is by sellers concessions and/or lender credit
  • The down payment is required on all home purchase transactions with the exception of VA and USDA Loans
  • Using Gift Funds is one way where many home buyers come up with the down payment on home purchase transactions
  • Per Using Gift Funds Mortgage Guidelines, all gift funds need to be verified and sourced

It is not a matter of handing a check and/or cash by a donor to a recipient.

Verified Assets Required By Mortgage Underwriters

All lenders will ask for 60 days of bank statements by mortgage borrowers.

  • The main reason mortgage underwriters want to see 2 months bank statements is because they need to see assets for the down payment and/or closing costs
  • A recent deposit that has not been sourced is not verified assets and cannot be used for the down payment asset calculations by underwriters
  • All down payment and/or closing costs funds need to be sourced and verified by mortgage underwriters
  • Any irregular deposits and/or cash deposits that are older than 60 days do not have to sourced and/or verified

Borrowers who have irregular non-verified deposits in their bank account that is seasoned less than 60 days need to get gifted funds for their down payment and/or closing costs.

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Using Gift Funds Mortgage Guidelines On Government And Conventional Loans

Every loan program has its own Using Gift Funds Mortgage Guidelines:

HUD Guidelines On Gift Funds For FHA Loans:

  • FHA Loans allows gift funds for down payment gifted by family members
  • Employer and/or labor union of the home buyer can gift the borrower the down payment
  • A private and/or government-sponsored non-for-profit organization and/or charitable non-profit local, county, state, federal agency can gift down payment to home buyers
  • Down Payment Assistance Mortgage Program by a city, county, state, and/or federal agency
  • Grants to first time home buyers

The Department Of Veterans Affairs Gift Guidelines On VA Home Loans

The Department of Veterans Affairs, the VA, does not require any down payment on home purchase transactions.

  • VA allows 100% financing for eligible borrowers with Certificate of Eligibility (COE)
  • However, VA, as well as other loan programs, have closing costs
  • Closing costs can be covered with sellers concessions and/or lender credit

In the event a borrower needs additional funds for closing costs, the following are VA Guidelines on Gift Funds:

Gift funds may be used by the borrower from an individual whom they have an established relationship with, but unacceptable by any person with a financial interest in the transaction such as the seller, realtor, builder, or Loan Originator. 

USDA Gift Funds Mortgage Guidelines On USDA Loans

There is no down payment requirement on USDA Loans.

  • However, there are closing costs on USDA Loans
  • Most Home buyers do not have to worry about closing costs on USDA Loans
  • Closing costs are normally covered with sellers concessions and/or lender credit
  • However, if a home buyer is short on closing costs, USDA does allow gift funds

Here are the USDA Gift Mortgage Guidelines:

For USDA loans, gifts funds can be provided by a mortgage applicant’s relative, employer or labor union, charitable organization, or government agency or public entity with a program similar to FHA Loans.

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Using Gift Funds Mortgage Guidelines On Conventional Loans

Fannie Mae and Freddie Mac allow gift funds for home buyers to use for the down payment on conventional loans. Gift funds can be accepted by the following:

  • Spouse of the borrower
  • Domestic partner
  • The fiancee of the borrower
  • Children and/or stepchildren of the borrower
  • Any individual who is related to the main borrower by law, marriage, blood

How Do Gift Funds Get Processed

The proper process and steps need to be taken when using gift funds for a home buyer’s down payment. The lender will prepare a gift letter for the borrower and the donor to complete, attest to, sign, and date. The gift letter will contain the following information:

  • Donor’s Name and Recipient’s name and relationship to the borrower
  • Date
  • Location of the subject property
  • Verbiage that the gift is solely a gift for the down payment and not a loan
  • The gift will not be paid back
  • Information of donor’s account: type of account, account number, name of depository, a signature of the donor(s), printed name of the donor, address of the donor, and telephone number.
  • Certification that the gift funds are a gift and not a loan and the gift will not be paid back
  • Needs to be dated and signed
  • Need 30 days of bank statement by the donor
  • Need to provide documentation showing the gift funds have been withdrawn by the donor’s bank account and transferred to the borrowers’ bank account
  • Provide canceled check if applicable

For more information on this topic and/or other mortgage questions, please contact us at Gustan Cho Associates at 262-716-8151 or text us for faster response. Or email us at gcho@loancabin.com. We are available 7 days a week, evenings, weekends, and holidays.

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