Jan 24, 2018

Over the last few years lending guidelines have opened-up to allow financial gifts from acceptable donors to be used towards all of the down payment on a house in most cases.  Gift funds are an especially valuable tool for first time home buyers who can afford the monthly payment on a new home, but who might be short on the funds required for any required down payment or possible closing costs. Combining gift funds with a Conventional, FHA, USDA or VA loan program can reduce the buyer’s required cash-to-close to zero.

Typically, donors of financial gifts toward purchasing a house need to be close relatives. According to Fannie Mae a donor can be “a relative, defined as the borrower’s spouse, child, or another dependent, or by any other individual who is related to the borrower by blood, marriage, adoption, or legal guardianship.” In addition, a fiancé or domestic partner can give a gift.

FHA expands on this rule allowing an employer, charitable organization or government agency to contribute. There’s even a provision for a friend to give a gift, provided a well-documented, long-term relationship was in existence prior to the real estate transaction. An example would be a high school yearbook, a family photo album, or proof of being roommates in college. This is the kind of real-life documentation the underwriter might ask for when receiving a financial gift from a friend.

Keep in mind that all lenders require documented proof that these funds are a legitimate gift. There can be no side arrangements between the donor and receiver to pay back any sort of loan. A formal Gift Letter will need to be completed and signed by the acceptable donor, and a recent official bank statement from the donor proving that the funds are coming from an account they own is required due to the Patriot Act and various other money laundering laws.