With most loan programs, you can accept a gift to be used for 100% of your down payment, closing costs, and/or earnest money. However, there is an exact process for accepting gift funds that we both must follow to comply with Agency Guidelines (not just our bank’s guidelines).
A gift for a down payment using FHA financing may come from sources such as: family members, close friend, the borrower’s employer or a charitable organization such as a church. With that said, HUD/FHA clearly states that these funds must be completely documented (paper trail from source, meaning a copy of the donor’s bank statement showing the ability for them to gift the money ) and the donor must complete a gift letter. We will provide you a copy of a blank gift letter to complete once a property address is identified.
On the other hand, a FANNIE MAE or FREDDIE MAC loan (conventional loan) allows for the donor to wire the gift funds to escrow eliminating the papertrail process for having to request a copy of the donor’s bank statements.
Watch this short video, it will help…. Then, share this info with the donor 🙂
Accepting money for a down payment is a 3-Step Process:
First – Get A Gift Letter
A Gift Letter is required by FHA, VA and USDA underwriting guidelines
We will provide you a gift letter that contains:
(1) The amount of gift
(2) The donor’s name
(3) The subject property address
(4) Verbiage indicating the gift is NOT loan, and needs not repaid
(5) Signatures and dates from both donor and recipient
Next – Receive Money From Donor
The donor (gifter) needs to make a clear paper trail documenting where the money came from and the form in which it will be transferred to the recipient. Make sure you follow these steps to a “T”:
(1) Provide a bank statement showing the donor has the funds available
(2) Provide a copy of the check or wire transfer (money order or check is the best option)
(3) The gift much match the amount on the gift letter
Lastly – Depositing the Gift Funds
It is important to remember that when you deposit the gift funds to follow these three steps:
(1) Do not commingle the funds, meaning: If you receive a gift of $6,000, only deposit $6,000 at that time
(2) After the deposit is made, request a copy of the check from the teller
(3) And, finally, after the deposit is made, request an update account balance statement reflecting the deposit
If you follow the above-mentioned steps to a “T” you can avoid costly hang-ups in underwriting. If you would like a copy of the Gift Funds Checklist along with a certified Gift Letter, you can click on the link below or call me directly at (425) 350-7136.
Another common way that home buyers are using gift funds for down payment assistance is through a 401k loan. Using a 401k loan to purchase a home is becoming more and more common as a result of poorly performing investment accounts. Typically, there are minimal fees or costs to take out a loan against a 401k, and if you plan on keeping the home for more than 5 years, often times that is a good option.