Your Guide to Using Gift Funds For FHA Loans

Did you know you can use gift funds toward a down payment?

With an FHA loan, you can use gift funds to cover all or some of your down payment, closing costs or financial reserves.

So if you’re looking to pursue homeownership, why not put gift funds on your wish list this year? Read on to find out who can give, requirements and needed documentation.

What Are Gift Funds?

Gift funds are monies that are given to a borrower to go toward a primary or secondary home purchase. The funds can be put toward all or some of the down payment, closing costs or financial reserves.

Note: Gifts are not allowed on investment properties.

Who Can Give the Funds?

A Relative

Fannie Mae defines a relative as a spouse, child or other dependent or by anyone related to the borrower by blood, marriage, adoption or legal guardianship.

A Non-Relative

Someone who shares a familial relationship with the borrower which includes a domestic partner (includes relatives of domestic partners as well), a former relative, a godparent or a fiancé/fiancée, according to Fannie Mae guidelines.

Note: The donor can’t have an affiliation with the builder, developer, real estate agent or interested party.

Gift Fund Requirements

Minimum Borrower Contribution

For most purchases, a borrower doesn’t need to contribute a minimum amount of money and all funds needed for the transaction can come from a gift.

For borrowers who have a loan-to-value of over 80% and are purchasing a two- to four-unit primary home or a second home, the borrower must contribute 5% of their own funds before using gift funds, according to Fannie Mae guidelines.

Needed Documentation

Gifts need to be documented through a gift letter signed by the donor and list the name of the trust or estate account (if applicable). Gift letters include the following:

• The actual or maximum dollar amount of the gift
• A statement by the donor that they don’t expect to be repaid
• The donor’s name, address, phone number and relationship to the borrower

Verifying the Gift Funds

To verify the donor’s contributions with your lender, the borrower must provide any of the following documentation:

• A copy of the donor’s check and borrower’s deposit slip
• A copy of the donor’s withdrawal slip and borrower’s deposit slip
• Proof of the electronic transfer of funds from the donor’s account to the borrower’s account or to the closing agent
• A copy of the donor’s check to the closing agent
• A settlement statement showing receipt of the donor’s check

Your Home Purchase Starts Here

If a home of your own is on your wish list, we can help!

Our talented and knowledgeable Loan Officers will walk with you through all the needed documentation and steps, starting with preapproval so that you know how much you can afford when house hunting.

Get preapproved here to start your homebuying journey.