What are FHA Mortgage Lenders requirements for gifts for down payments?
FHA GIFT FOR DOWN PAYMENT OK!
VERY IMPORTANT TAKE NOTE:
- FHA Requires Only 3.5% Down Payment!
- Only Family Members may provide equity credit as a gift on property being sold to other Family Members.
- Cash on Hand also known is not an acceptable source of donor gift funds.
The Gift for an FHA Mortgage must be for nonpayment refer to the contributions of cash or equity with no expectation of repayment.
Gift Funds for down Payment may be provided by:
- The Borrower’s Family Member;
- The Borrower’s employer or labor union;
- A close friend with a clearly defined relative of the Borrower;
- A charitable organization;
- A State or Governmental agency or public Entity that has a program providing home ownership assistance to low or moderate income families or first-time home buyers.
FHA GIFT FOR DOWN PAYMENT INFORMATIONAL LINKS
- How do lenders document gifts given in the form of cash?Cash on Hand is not an acceptable source of donor gift funds. The Mortgagee (Lender) must obtain a gift letter signed and dated by the donor and Borrower that includes the following: • the donor’s name, address
- Can gift funds come from the employer?Gift Funds may be provided by the Borrower’s employer or labor union. Any gift of the Borrower’s required minimum investment must also comply with the additional requirements for Source Requirements of Borrower’s Minimum
- Does HUD allow gifts of equity?Only Family Members may provide equity credit as a gift on property being sold to other Family Members. The Mortgagee must obtain a gift letter signed and dated by the donor and Borrower that includes the following
- Are government entities required to provide a gift letter?If a gift is provided by a governmental agency or public entity that has a program providing homeownership assistance to low- or moderate- income families or first-time homebuyers, a gift letter is required. The gift letter must be signed
- Where can I find the guidelines regarding gift funds?Gifts refer to the contributions of cash or equity with no expectation of repayment. Gift Funds may be provided by: • the Borrower’s Family Member; • the Borrower’s employer or labor
- Can a real estate agent give a gift of their commission for the down payment?Commissions from the Sale of the Subject Property as part of the Borrower’s acceptable source of funds if the Borrower is a licensed real estate agent. A Family Member entitled to the commission may also provide it as a gift, in compliance
- Can gift funds be provided from a friend or other unrelated party?Gifts refer to the contributions of cash or equity with no expectation of repayment. Gifts may be provided by: • the Borrower’s Family Member; • the Borrower’s employer or labor union
- Can gift funds come from the seller, lender or other interested party?Gifts may be provided by: • the Borrower’s Family Member; • the Borrower’s employer or labor union; • a close friend with a clearly defined and documented interest in the Borrower
- Does FHA require wet signatures on government entity gift letters or secondary financing documents?No, FHA does not require wet signatures from government entities, instrumentalities of government or their agencies on the gift letter and documentation associated with the secondary financing. However, the signatures provided must be from persons
- Must values be passed from the AUS to TOTAL for all fields, even if there is no value to pass?://www.hud.gov/pub/chums/aus-developers-guide-SOAP-MISMO.pdf Additional Notes: DTD Element Name – If the DTD element name does not match the names listed in the requirements the loan will receive an error code. Gifts
- Can I receive a loan from a family member rather than a gift?FHA will insure a first mortgage on a property that has a second mortgage or lien held by a Family Member, provided that all requirements in Handbook 4000.1 II.A.4.d.iii.(J)(3) or II.A.5.c.iii.(J)(3) are met. Handbook 4000.1 is available at http://portal.hud.gov/hudportal/HUD?src=/program_offices/administration/hudclips/handbooks/hsgh
- Can a nonprofit or government entity who is the seller of a property provide gift funds?The lender may only permit the Borrower’s Minimum Required Investment (MRI) to be provided by a source permissible under Section 203(b)(9)(C) of the National Housing Act, which means the funds for the Borrower’s MRI must not come from: (1) the seller of the property; (2) any other person or Entity who financially benefits from the transaction; or (3) anyone who is or will be reimbursed, directly or indirectly, by any party included in (1) or (2) above. HUD does not interpret Section 203(b)(9)(C) of the National Housing Act to prohibit Governmental Entities from providing the Borrower’s MRI where the Governmental Entity is originating the insured mortgage through one of its homeownership programs. The lender must document that the Governmental Entity incurred prior to or at closing an enforceable legal liability or obligation to fund the Borrower’s MRI. It is not sufficient to document that the Governmental Entity has agreed to reimburse the lender for the use of funds legally belonging to the lender to fund the Borrower’s MRI. The lender must obtain: • a canceled check, evidence of wire transfer or other draw request showing that prior to or at the time of closing the Governmental Entity had authorized a draw of the funds provided towards the Borrower’s MRI from the Governmental Entity’s account; or • a letter from the Governmental Entity, signed by an authorized official, establishing that the funds provided towards the Borrower’s MRI were funds legally belonging to the Governmental Entity at or before closing. Examples of acceptable language is available in Handbook 4000.1 II.A.4.d.ii.(C). While the lender is not required to document the actual transfer of funds in satisfaction of the obligation or liability, the failure of the Governmental Entity to satisfy the obligation or liability may result in a determination that the funds were provided by a prohibited source. For additional information see Handbook 4000.1 II.A.4.c.ii. or II.A.5.c.ii. available at
- What is considered secondary financing on an FHA-insured first mortgage?Secondary financing is any financing other than the first mortgage that creates a lien against the property. Any such financing that does create a lien against the property is not considered a gift or a grant even if it does not require regular
- Does FHA have cash reserve requirements?of cash taken at settlement in cash-out transactions; incidental cash received at settlement in other loan transactions; gift funds; equity in another property; or borrowed funds from any source
- When can borrower cash reserves be used as a compensating factor for a manually underwritten loan?). Reserves are calculated as the Borrower’s total assets less: • the total funds required to close the mortgage; • gifts; • borrowed funds; and • cash received at closing in a cash-out
- What is the FHA definition of borrower reserves?in cash out transactions • incidental cash received at settlement in other loan transactions • gift funds in excess of the amount required for the cash investment and other expenses • equity in another
- Can a Homeownership Set Aside Program grant be used for down payment?that creates a lien against the property is not considered a gift or grant even if it does not require regular payments or has other features forgiving the debt. Any AHP Set-Aside funds used for the Borrower’s Minimum Required Investment (MRI) must
- Why did FHAC issue a REFER at insurance application for a loan that received an ACCEPT in TOTAL?Scorecard for accuracy, ensuring that it matches in both systems, prior to seeking additional guidance from HUD. One of the most frequent reasons for a score change is a difference in the gift fund amount entered in TOTAL Scorecard and the gift
- Who is insured by FHA Mortgage Insurance and what are the benefits? and that money can come from a family member, employer or charitable organization as a gift. Other loan programs don’t allow this. Costs Less: FHA loans have competitive interest rates because
- How is the Adjusted As-Is Value established for a 203(k) refinance transaction?; or • the As-Is Property Value. For properties acquired by the borrower within 12 months of the case assignment date by inheritance or through a gift from a family member, the mortgagee may utilize the calculation of Adjusted As-Is Value
- How can FHA help me buy a home?. Low Down Payment: FHA loans have a low 3.5% downpayment and that money can come from a family member, employer or charitable organization as a gift. Other loan programs don’t allow this. Costs Less: FHA loans have competitive interest
- Can I refinance the mortgage on a property with an FHA loan if I inherited the property?. • Properties acquired by the Borrower within 12 months of case number assignment by inheritance or through a gift from a Family Member may utilize the calculation of Adjusted Value for properties purchased 12 months or greater
- Can a lender fund and close a second mortgage on behalf of a Government Entity?FHA-approved mortgagees may fund and close the secondary financing on behalf of the Government Entity provided the Government Entity is the source of the borrower’s required minimum cash investment. However, the secondary lien must be held by the government entity prior to endorsement of the first mortgage. For additional information see Handbook 4000.1 II.A.4.d.iii.(J)(1); II.A.5.c.ii; II.A.5.c.iii.(J)(1) available at http://portal.hud.gov/hudportal/HUD?src=/program_offices/administration/hudclips/handbooks/
- Do the requirements for 3-4 unit properties apply to both purchase and refinance transactions?The requirements that apply to 3- to 4- unit property purchase transactions also apply to all refinance transactions of 3- to 4- unit properties. For additional information see Handbook 4000.1 II.A.1.b.iv.(B)(3); II.A.4.d.i.(C); II.A.5.c.i.(C) at http://portal.hud.gov/hudportal/HUD?src=/program_offices/administration/hudclips/handbooks/hsgh
- Can employers contribute toward the borrower’s down payment?Employer Assistance refers to benefits provided by an employer to relocate the Borrower or assist in the Borrower’s housing purchase, including closing costs, Mortgage Insurance Premiums (MIP), or any portion of the Borrower’s Minimum Required Investment (MRI). Employer Assistance does not include benefits provided by an employer through secondary financing. A salary advance cannot be considered as assets to close. RELOCATION GUARANTEED PURCHASE The Mortgagee may allow the net proceeds (relocation guaranteed purchase price minus the outstanding liens and expenses) to be used as cash to close. If the Borrower is being transferred by their company under a guaranteed sales plan, the Mortgagee must obtain an executed buyout agreement signed by all parties and receipt of funds indicating that the employer or relocation service takes responsibility for the outstanding mortgage debt. The Mortgagee must verify and document the agreement guaranteeing employer purchase of the Borrower’s previous residence and the net proceeds from sale. EMPLOYER ASSISTANCE PLANS The amount received under Employer Assistance Plans may be used as cash to close. The Mortgagee must verify and document the Borrower’s receipt of assistance. If the employer provides this benefit after settlement, the Mortgagee must verify and document that the Borrower has sufficient cash for closing. For additional information see Handbook 4000.1 II.A.4.d.iii.(M) or II.A.5.c.iii.(M) available at http://portal.hud.gov/hudportal/HUD?src=/program_offices/administration/hudclips/handbooks/