Gift Funds Used for the Down Payment - What are the Rules?

By
Real Estate Mortgage Broker with The Mortgage Experts at America's Mortgage
http://actvra.in/yhN

If a borrower does not have enough money to pay for the required down payment, it is permissible to have a relative give the borrower the money for the down payment.

With an FHA loan, the entire down payment amount can come from a relative.  The gift donor must sign a letter stating that the funds do not have to be paid back.  The donor must be able to show that they are able to provide the funds (a bank statement showing the money has not just recently been deposited into their account is sufficient), and the borrower must show receipt of the funds (a bank statement or deposit ticket is needed).

With a conventional loan, the rules are slightly different.  A relative can give a gift to the borrower for the down payment, but the borrower must contribute the minimum required down payment themselves (usually 5%).  The exception to this is if the gift is for at least 20% of the purchase price.  Then, the relative can give the borrower the entire down payment and the borrower doesn't have to contribute any money at all.  The documentation requirements are slightly different, too.  The donor does not have to show that they are able to afford the gift - they just need to show that they have given it to the borrower.  The borrower still needs to show that they have received the gift, and the gift letter still needs to be signed.

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Topic:
Lending / Financial
Location:
Colorado
Groups:
Colorado Realty Bloggers
Tags:
mortgage tips
gift

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Rainmaker
123,606
Chris Thomas
The Mortgage Experts at America's Mortgage

Lily,

You are going to have to discuss this with your lender.  There are a lot of issues here and you really need to make sure the answers you get are coming from the underwriter, the person who will ultimately decide whether you can do it.

Regarding the tax consequences, you should discuss that with a tax attorney or a CPA.  Definitely do NOT trust a lender on taxes.  Most lenders will tell you exactly what you want to hear.

Chris

 

January 25, 2013 08:01 AM
Anonymous
Lauri

I am in the process of gifting my daughter 10,000 toward the down payment on her house.  She will be using a conventional loan.  We don't want to have the world see our bank statement.  Is it okay for us to send our bank statement to the lender so no one else will be privy to our personal information?

May 07, 2013 07:17 AM
Rainmaker
123,606
Chris Thomas
The Mortgage Experts at America's Mortgage

Lauri,

I'm not quite sure who else you would give your bank statements to besides the lender.  No one else needs to see them.

Chris

May 07, 2013 08:30 AM
Anonymous
Matt

Hi Chris,

My parents are helping me buy a house we are going 50/50 and will all be on the title as joint tenants. They will be paying their half in cash as a down payment.  I will be taking out a mortgage for the remainder.  The lender is requesting "gift letters" for their half, I am not sure why it is considered a gift if they will be on the title/deed. Furthermore they would have to pay tax on the funds if it is considered a gift.  Is this correct? 

 

Thanks,

July 21, 2013 11:18 PM
Anonymous
Jon

Hi Chris,


Can definitely tell you know your stuff. I am asking this on behalf of a friend and his fiancee.


Details:

House: ~$250k

Loan type: Fannie Conventional 20% down

Source of funds: $30k with the groom and $20k with the bride

Source of funds from the groom: Gift from Parents(2 weeks seasoned, and may not be seasoned in time)

Source of funds from bride: Herself


Initially they were just going to wait out the sourcing hassle and have the groom go on the loan by himself with a gift from the bride for the downpayment. But apparently they have found a place inexepensive enough for the bride to go on by herself now if need be(they don't want to go joint and it doesn't make any sense).


Goal: They obviously want to avoid the hassle of him(donor) providing 2 months bank statements, to show the transfer from his brokerage account, show brokerage account, and then show that coming from parents, and then go get an affidavit from the parents in addition to the one he's signing for her if the underwriter dug that far.

Instead they would obviously prefer to just show his affidavid and confirmation of funds if possible to keep things simple. I've called 3 discount lenders on their behalf and all 3 of the loan officers said they don't believe that donor bank statements are required at their firm(which makes sense because Fannie Mae Selling Guide doesn't require it--even though many lenders seem to add their own overlay on that).


Question: What it if the loan officer at the lender of their choice is wrong and they end up getting the request for donor bank statements? 

My guess was in this order:

1) Fire off B3-4.3-04 guidelines and inform them that they aren't required to receive that, their loan officers said it wasn't required when we called before application, and let them know that you're willing to give verification in any of the ways listed in those regs.

If they push back:

2) Offer to get official letter from bank verifying donor funds on particular date, account number, amount of cashier's check, date of transfer, etc.

If they still push back:

3) Wait until 1 bank statement clears and send them 1 month's bank statement from the donor(I don't even know if lenders require 2 months bank statements from donor like they do with borrower or if 1 will suffice) so the transfer from brokerage account doesn't show up.

If they still push back demanding 2:

4) Send 2 months bank statements, but not provide brokerage account statement.

If they still push back:

5) Find a new lender or start getting another avidavid from the gifting parents and hopefully not have it all start over again with them.

In case you didn't realize I'm very thorough in my advice to friends(because I hate being wrong). So how much am I over thinking this and at what stage is thing a non issue(2?, 3?, 4?)?

Thanks ahead of time!

July 31, 2013 06:02 PM
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Chris Thomas

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