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What are the Guidelines for Gifted Funds?

March 2, 2014

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FHA/VA GUIDELINES

If the gifted funds are in the borrower’s account, then we must obtain:

  • A copy of the withdrawal document showing that the withdrawal was from the donor’s account, and
  • The borrower’s deposit slip and borrower’s bank statement showing the deposits

We MUST be able to determine that the gifted funds were not provided by an unacceptable source and were the donor’s own funds.

To meet the first bullet point, an acceptable procedure is to obtain a copy of a cancelled personal check.  If the gifted funds are in the form of a cashier’s check or the like, we must be sure to provide evidence that the funds used to purchase the cashier’s check came from the donor.  A withdrawal slip (specifically showing the donor’s account number/donor’s name from which the funds were obtained) would be sufficient evidence, along with a copy of the cashier’s check.

If a donor bank statement is received, please be sure to look for red flags regarding the gift.  For example, if there is a deposit for $5,000 in a close time period to the gift withdrawal of $5,000, the source of this deposit should be questioned to ensure it complies with the FHA gift rule that the gifted funds are not derived in any manner from a party to the sales transaction.

100% of the down payment and closing costs/pre-paid expenses can be in the form of a gift.  Some down payment programs require a specific amount of funds come from the buyer’s personal funds.  Make sure to ask your loan officer for guidelines prior to submitting your offers.

USDA GUIDELINES

USDA follows the same guidelines as FHA; however, USDA borrowers can receive gift funds from charitable organizations, nonprofits and even municipalities.

CONVENTIONAL GUIDELINES

A borrower of a loan secured by a principal residence or second home may use funds received as a personal gift from an acceptable donor.  Gifted funds may fund all or part of the down payment, closing costs, or reserves, subject to the minimum borrower contribution.  Gifts are not allowed on an investment property.

We must verify that sufficient funds to cover the gift are either in the donor’s account or have been transferred to the borrower’s account.  Acceptable documentation includes the following:

  • a copy of the donor’s check and the borrower’s deposit slip,
  • a copy of the donor’s withdrawal slip and the borrower’s deposit slip,
  • a copy of the donor’s check to the closing agent, or
  • a settlement statement showing receipt of the donor’s check.

When the funds are not transferred prior to settlement, we must document that the donor gave the closing agent the gifted funds in the form of a certified check, a cashier’s check, or other official check.

Borrowers seeking a conventional loan who can’t put down at least 20 percent must have at least 5 percent of their own funds in the loan.

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