FHA Mortgages and Gift Funds

by Keith Landis on February 28, 2014

FHA Mortgages allow borrowers to use Gift Funds to meet the 3.5% down payment requirement. When using Gift Funds to purchase a home it is important that Gift Funds be documented properly to avoid any issues with the FHA underwriting process. The primary intention of these rules is too make sure that the FHA borrower is not also borrowing their required 3.5% down payment and that these funds truly are a gift.

            Acceptable sources for these gifts           

  • a borrower’s relative
  • a close friend with a clearly defined and documented interest in the borrower
  • a charitable organization
  • a government program that provides down payment assistance
  • How to accurately document these funds is as follows…

There is also a certain way that these funds should be verified.  How they are verified will depend on if the gift funds have already been transferred or not.

 

 If the gift funds are already in the borrower’s account…

 Then the lender must obtain…

  • · a copy of the withdrawal document showing that the withdrawal was from the donor’s account · the borrower’s deposit slip
  • · bank statement showing the deposit

 

If the gift funds are to be provided at closing and are in the form of a cashiers check from the donor’s account…

Then the lender must obtain…

  • a bank statement showing the withdrawal from the donor’s account, and a copy of the certified check, cashiers check, money order, official check, or other type of bank check

 

Reference
HUD 4155.1 Chapter 5, Section B 5-B-1

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