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

By
Mortgage and Lending with The Mortgage Experts at America's Mortgage, a Division of Cherry Creek Mortgage Co. NMLS #241555
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:
gift
mortgage tips

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Anonymous
jeff

Thanks for providing all this great info, much appreciated!

I am pre approved for a conventional home loan.

I received $15k as a gift, then shortly after wrote a $9k check to open escrow. Now the bank is saying that the $15k cannot be applied to my available funds even with a proper gift letter. The cash available in my account today is $12k, and they are saying that they will deduct the $15k gift from my current balance meaning that i have negative -$3000 as qualifying funds. if the bank were to have been ok with the gift, I would only need to have $7k more to close for a total of $16k.

In the past 60 days- and projected to the time of escrow my account will have had over $16k in deposits sourced from my salary and my wife's savings account. Is there any technique to get the lender / underwriter to see that there are other monies in my account that qualify other than today's current balance?

Thanks very much!

 

August 23, 2012 01:56 PM
Anonymous
Rachel

I was gifted $15000 for a FHA loan. Settlement fees are expected to be around $10000. Lender says I have to wire all ($15000) of it to escrow and will be refunded the difference about 3 days after closing. Is this normal practice?

October 23, 2012 09:45 PM
Rainmaker
124,353
Chris Thomas
The Mortgage Experts at America's Mortgage, a Division of Cherry Creek Mortgage Co.

Rachel,

No, that is not normal practice.  It sounds like your lender has no idea what he is doing.  If someone gives you money as a gift, it belongs to you, and you can do whatever you want with it.  You certainly do not have to give it to someone else and then hope they don't steal from you.

If it's not too late, find a new lender.  If it is too late to find a new lender, ask to speak to your lender's boss.  Hopefully, the boss is not as ignorant as your lender is.

October 24, 2012 07:42 AM
Anonymous
Lily

My husband and I are going through a foreclosure, (not finalized).  However, we have saved enough for a down payment and my father is willing to apply for a mortgage for us.  Although we cannot be part of the loan, we were told we could be on the title, but can WE be the ones putting the 25% down payment?  It would be approximately $45k.  If so, would there be any tax problems for either us or my father?

January 24, 2013 05:06 PM
Rainmaker
124,353
Chris Thomas
The Mortgage Experts at America's Mortgage, a Division of Cherry Creek Mortgage Co.

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
124,353
Chris Thomas
The Mortgage Experts at America's Mortgage, a Division of Cherry Creek Mortgage Co.

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
Anonymous
KN
Can I brother-in-law give me gift for the down payment, my sister and BIL both want to give me gift but they have joint bank account, is it ok if they give from same account for me...
May 12, 2014 07:57 AM
Rainmaker
124,353
Chris Thomas
The Mortgage Experts at America's Mortgage, a Division of Cherry Creek Mortgage Co.

Since the money is coming from the same bank account, they could each write you a check, or they could just write you one check.  Either way is fine.

Chris

May 19, 2014 12:58 PM
Anonymous
shirley

Hi, Chris

if parents and their daughter all is the buyer and will be on the house title, but only the daughter name on the loan, the downpayments from the parents who also are buyer , will the parents need to write gift letter for their daughter's loan requested by the lender? after that,
the parents will be put on the title which is allowed by the lender?
will the parents need to report the gifts or not if their names will be on the house title?
thank you.
Best Regards
shirley

June 18, 2014 11:20 AM
Anonymous
W Lugo

I have a question in regards to what is considered a gift.

I am buying a new house which will be my primary residence. I currently own a townhouse which I want to sell. Due to the time restraint on closing for the new property I am looking to assume both properties for a short time. My debt/ income ratio is not where is needs to be by a small amount. I am also using money to close on the new property since my cash is tied up on my current home.

If a relative pays off a credit card to lower my debt/ income ratio and allow me to assume both properties, would that be considered gift money?

Thanks,
Wally

June 23, 2014 06:43 AM
Rainmaker
124,353
Chris Thomas
The Mortgage Experts at America's Mortgage, a Division of Cherry Creek Mortgage Co.

Wally - The underwriter may ask you to document where the money came from to pay off the credit card.  If they do, it will be considered a gift.

Keep in mind that you may have to close the credit card account after it is paid off. You are no longer allowed to pay off a card and keep it open when you are getting a conventional loan.  If you are getting an FHA or a VA loan, then you do not have to close the accoutn once it's been paid off.

Chris

June 23, 2014 07:45 AM
Anonymous
Marybel

I have a question regarding who cannot be giving me money as a gift for downpayment. I was told by the lender that I need to put 20% down to give me a commitment. Im short 10K, my application is ONLY under my name as my husband credit was low. Can he borrow the 10K from his friend and give it to me a gift with a letter? Afterall he is not involved in the mortgage so his debt should not affect me...i was told by a different lender that he would be in the title even if he does not go in the mortgage commitment? is this something i can control?
Thanks for your help.

July 01, 2014 09:28 AM
Anonymous
Manda

I am going to b on the mortgage title but not on the loan. I am his fiance and putting 20% + down so he will qualify on his own.. are there tax complications fr me in gifting the 20% down payment?

July 01, 2014 09:49 AM
Anonymous
Dee

What are the tax implications of parents providing a gift of 30K for a down payment? We are putting down 5% but want to put in 10%.

July 08, 2014 11:23 AM
Rainmaker
124,353
Chris Thomas
The Mortgage Experts at America's Mortgage, a Division of Cherry Creek Mortgage Co.

Manda - you will need to contact an accountant or tax lawyer to get tax advice.

July 10, 2014 11:46 AM
Rainmaker
124,353
Chris Thomas
The Mortgage Experts at America's Mortgage, a Division of Cherry Creek Mortgage Co.

Dee - you should talk to your accountant or a tax attorney for tax advice.  Lenders are not allowed to help you with that.

July 10, 2014 11:47 AM
Anonymous
Stephen

My parents are helping me with a %5 down payment. They have already provided the gift letter. They will also be providing me with funds for the escrow and cash reserve. Is this going to be a problem? So far we are going with a conventional loan, but would it be better to do this with FHA?

July 22, 2014 08:24 PM
Anonymous
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