Recently a program has become available that allows home buyers to purchase a home with a Conventional Mortgage with the entire down payment coming in the form of a Gift. This program enables borrowers to buy a home with no or little money out of pocket.
What is considered a Gift when it comes to mortgages?
A gift for a mortgage transaction is when the home buyers received their down payment funds from an approved source with no requirement of ever paying these funds back. In most cases, these Gift funds are gifted from immediate family members such as a spouse not on the mortgage, parents, grandparents or siblings. Other approved sources include employers and non-profit religious organizations or non-profit community organizations. These gifts must be sourced and the lender will require that evidence of the donor’s ability to give the gift be produced. A gift letter will be completed and signed by all parties attesting to the no repayment requirement.
How much or how little Gift is required with this program?
This program will allow the buyer to finance up to 95% of transaction. The other 5% can be in the form of a Gift.
What type of credit history is required for this program?
This program follows the standard credit guidelines of any Conventional mortgage. Credit scores for this program as low as 620 are eligible with an Approval through Fannie Mae or Freddie Mac.
Does any seller assistance towards closing costs count as a Gift?
No, seller assist is separate from the Gift funds. Per standard Conventional guidelines, this program follows the standard Seller Assistance rules. 3% seller assist is allowed for 95% financing. 6% seller assist is allowed for 90% financing and 9% seller assist is allowed for 75% financing.
Highlights of the Conventional Mortgage program with Gift Funds program
· When combining the Gift Funds with Seller Assist this can result in the home buyer bringing little or no money to the closing table.
· Any required mortgage insurance is cheaper than FHA mortgage insurance and can be removed once 20% equity is established with an appraisal or 22% equity is established with balance reduction.
· Same low Conventional mortgage rates as a Conventional mortgage with no gift