Latest Gift Guidelines

June 15th, 2015

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Many people seek a gift to get help in buying a house, but it’s not as simple as getting the gift giver to write a letter stating the amount of the gift. There are numerous guidelines that go along with properly documenting a gift, as well as who it can come from. The latest gift guidelines are:

FHA and VA Loans:

In order for funds to be considered a gift, there must be no expected or implied repayment of the funds to the donor by the borrower.

A gift is acceptable from:
• the borrower’s relative
• the borrower’s employer or labor union
• a close friend with a clearly defined and documented interest in the borrower
• a charitable organization
• a governmental agency or public entity that has a program providing home ownership assistance to low- and moderate-income families, or first-time homebuyers

The gift donor may not be a person or entity with an interest in the sale of the property, such as:

• the seller
• the real estate agent or broker
• the builder
• an associated entity

Gifts from these sources are considered inducements to purchase, and must be subtracted from the sales price.

A minimum borrower contribution from the borrower’s own funds is not required. All funds needed to complete the transaction can come from a gift.

Note: The portion of the gift not used to meet the down payment and closing requirements may also be counted as reserves.

Regardless of when gift funds are made available to a borrower, the lender must be able to determine that the gift funds were not provided by an unacceptable source, and were the donor’s own funds. When the transfer occurs at closing, the lender is responsible for verifying that the closing agent received the funds from the donor for the amount of the gift, and that the funds were from an acceptable source. Donors may borrow gift funds from any other acceptable source, provided the mortgage borrowers are not obligors to any note to secure money borrowed to give the gift.

The lender must document the gift with:
1. A completed gift letter (we would provide you the properly formatted gift letter).
2. Documentation showing the donor’s ability to give the gift. For example, by obtaining a bank statement showing they have the assets to make the gift or by obtaining a copy of a wire showing the money leaving the donor’s account.
3. Evidence of receipt of the gift by obtaining a copy of the check and the deposit slip from the gift check and/or a bank statement from the mortgage borrower showing the gift was received.

See Also: Gift Money And The Gift Tax

Conventional Loans:

In order for funds to be considered a gift, there must be no expected or implied repayment of the funds to the donor by the borrower.

A gift can be provided by:

• a relative, defined as the borrower’s spouse, child, or other dependent, or by any other individual who is related to the borrower by blood, marriage, adoption, or legal guardianship
• a fiancé, fiancée, or domestic partner

The donor may not be, or have any affiliation with:

• the builder
• the developer
• the real estate agent
• any other interested party to the transaction

A minimum borrower contribution from the borrower’s own funds is not required on a 1-4 unit principal residence or 2nd home when the mortgage borrower has 20% down or more. All funds needed to complete the transaction can come from a gift.

When a mortgage borrower is putting less than 20% down, a minimum borrower contribution from the borrower’s own funds is still not required on a 1 unit principal residence when the loan amount is a Conforming loan. However, with less than 20% down, if the loan balance is a Conforming “High Balance” loan, a 2nd home, or a 2-4 unit home, the borrower must make a 5% minimum borrower contribution from his or her own funds. After the minimum borrower contribution has been met, gifts can be used to supplement the down payment, closing costs, and cash reserves.

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

The lender must document the gift with:
1. A completed gift letter.
2. Documentation showing the donor’s ability to give the gift. For example, by obtaining a bank statement showing they have the assets to make the gift or by obtaining a copy of a wire showing the money leaving their account.
3. Evidence of receipt of the gift by obtaining a copy of the check and the deposit slip from the gift check and/or a bank statement from the mortgage borrower showing the gift was received.

Brian Martucci is a loan officer for Capital Bank Home Loans, a division of Capital Bank, N.A. He has been in the mortgage industry since 1986 and has served in a number of roles, including loan processor, loan officer, mortgage broker, branch manager, and vice president. Brian Martucci – NMLS# 185421. His opinions do not necessarily reflect the opinions and beliefs of Capital Bank Home Loans or Capital Bank. Capital Bank, N.A.- NMLS# 401599. Click here for the Capital Bank, N.A. “Privacy Policy”.​

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