Loan Modification

Gifts for FHA Down Payments

By Gina Pogol

Some of you lucky dogs have people willing to give you money to help with your mortgage down payment. But how does an FHA lender feel about that?

First, gifts or down payment assistance can?t be from just anyone with a fat wallet. Sellers, real estate agents, or anyone else who profits from the sale can?t “gift” you with down payment money. Private party down payment assistance plans, like the Nehemiah program, were eliminated back in 2008. Per FHA’s guidelines:

“An outright gift of the cash investment is acceptable if the donor is the borrower?s relative, the borrower?s employer or labor union, a charitable organization, a governmental agency, or public entity that has a program to provide home ownership assistance to low- and moderate-income families or first-time home buyers, or a close friend with a clearly-defined and documented interest in the borrower.”

You may have to prove your relationship to your source of funding. Donors will need to show where the funds came out of their account by providing a withdrawal slip specifically showing the donor?s account number. Even then the underwriter may ask for a copy of the bank statement from the donor with his or her name printed on it. According to HUD the minimum requirements are, “a copy of the donor?s withdrawal slip or canceled check, along with the borrower?s deposit slip or bank statement showing the deposit to the borrower?s account.”

FHA requires that a gift letter be supplied, and that it contain the following:

1 ) The dollar amount
2 ) Name of the donor
3 ) The donor?s signature
4 ) The donor?s address
5 ) The donor?s telephone number
6 ) Relationship to the borrower
7 ) The borrower must be named
8 ) The borrower?s signature(s)
9 ) The letter must state that no repayment is required
10 ) Include language asserting that the funds were not made available to the donor from any person or entity with an interest in the sale of the property.

Finally, consider that your Dad-in-shining-armor could end up with an unexpected gift himself?an ugly tax bill. It?s best to consult a tax planner before making this kind of move to be sure that everyone knows the possible repercussions of the payment, including gift taxes.

Full post as published by FHA Mortgage Guide on May 20, 2010 (boomark / email).