July 12, 2016
In our last blog post we answered a reader question about whether it’s acceptable to receive gift funds from a family member for an FHA borrower’s down payment. FHA loan rules in HUD 4000.1 permit this, but the gift funds must come from approved sources. For example, no one with a financial stake in the outcome of the FHA loan can provide down payment gift funds for a borrower.
And for down payment gift funds that do come from an approved source, the lender has specific instructions in HUD 4000.1 on how to proceed. For example, on page 219 of HUD 4000.1, we learn:
“The Mortgagee must obtain a gift letter signed and dated by the donor and Borrower that includes the following:
–the donors name, address, and telephone number;
–the donors relationship to the Borrower;
–the dollar amount of the gift; and
–a statement that no repayment is required.”
Note the “no repayment” rule; down payment funds that are gifted to the borrower must have no strings attached. Furthermore, the lender is required to do the following in order to “verify and document the transfer of gift funds from the donor to the Borrower”:
–If the 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.
–If the gift funds are not verified in the Borrowers account, obtain the certified check or money order or cashiers check or wire transfer or other official check, and a bank statement showing the withdrawal from the donors account.
–If the gift funds are paid directly to the settlement agent, the Mortgagee must verify that the settlement agent received the funds from the donor for the amount of the gift, and that the funds were from an acceptable source.
–If the gift funds are being borrowed by the donor and documentation from the bank or other savings account is not available, the Mortgagee must have the donor provide written evidence that the funds were borrowed from an acceptable source, not from a party to the transaction.
FHA loan rules in HUD 4000.1 state that the lender, “and its affiliates” cannot provide a loan of gift funds, “to the donor unless the terms of the loan are equivalent to those available to the general public”.
It’s also important to remember that lender standards and state law may play a role in how down payment gift funds are handled or allowed as part of the transaction. Speak to your loan officer if you have any questions in this area.
Do you work in residential real estate? You should know about the free tool offered by FHA.com. It is designed especially for real estate websites; a widget that displays FHA loan limits for the counties serviced by those sites. It is simple to spend a few seconds customizing the state, counties, and widget size for the tool; you can copy the code and paste it into your website with ease. Get yours today:
http://www.fha.com/fha_loan_limits_widget
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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