FHA Loan Rules For Gift Funds

    There are specific guidelines where gift funds to the borrower are concerned for FHA loans. Gift funds are commonly used for home loan expenses including down payments, but when the borrower accepts gift funds for the purpose of making that down payment, the funds must meet FHA acceptability standards.

      House and Money with Pad of Paper and Pen

    What does this mean?

    FHA loan rules are very precise when it comes to the source of money used for a down payment. A borrower cannot use proceeds from a non-collateralized loan such as a payday loan or credit card cash advance to make a down payment, and if gift funds are used the money must come to the borrower with no obligations.

    “Gifts may be provided by:

    -the Borrowers Family Member;

    -the Borrowers employer or labor union;

    -a close friend with a clearly defined and documented interest in the Borrower;

    -a charitable organization;

    -a governmental agency or public Entity that has a program providing homeownership assistance to low or moderate income families; or first-time homebuyers.”

    Documentation of funds used for the down payment is an important task for the loan officer.  Gift funds have been verified in the Borrowers account, obtain the donors bank statement showing the withdrawal and evidence of the deposit into the Borrowers account.  As you can see, it’s best to show the “paper trail” or supporting documentation for the source of any financial gift associated with your home loan transaction.

    Please talk in detail to your mortgage lender before you acquire your gift funds so you can rest assured it will be done properly and your loan process will go smoothly.

    Source – FHA News Blog

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