How to Use Gift Funds To Buy A Home
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 bankâ€™s guidelines).
A gift for a down payment using FHA financing may come from sources such as: family members, close friend, the borrowerâ€™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 donorâ€™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.
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 paper trail process for having to request a copy of the donorâ€™s bank statements.
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Accepting money for a down payment is a 3-Step Process:
A Gift Letter is required by FHA, VA and USDA underwriting guidelines We will provide you a gift letter that contains:
- The amount of gift
- The donorâ€™s name
- The subject property addresS
- Verbiage indicating the gift is NOT loan, and needs not repaid
- Signatures and dates from both donor and recipient
2 â€“ 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 â€œTâ€:
- Provide a bank statement showing the donor has the funds available
- Provide a copy of the check or wire transfer (money order or check is the best option)
- The gift much match the amount on the gift letter
3 â€“ Depositing the Gift Funds
It is important to remember that when you deposit the gift funds to follow these three steps:
- Do not commingle the funds, meaning: If you receive a gift of $6,000, only deposit $6,000 at that time
- After the deposit is made, request a copy of the check from the teller
- Finally, after the deposit is made, request an update account balance statement reflecting the deposit
If you follow the above-mentioned steps to a â€œTâ€ you can avoid costly hang-ups in underwriting.
Click here if you would like a copy of the Gift Funds Checklist along with a Gift Letter form or call me at 240-367-9525.
I can be reached directly or via text message at (240) 674-3665.
You may also e-mail me at firstname.lastname@example.org