Many of our transactions involve gift funds. These generous gestures provide access to many of our borrower’s dreams…however sometimes that generosity can make us choke. Here are some guidelines and (often asked) silly questions to clear the fog.
Can I get a gift for any type of financing?
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 below. Gifts are not allowed on an investment property.
Can anyone give me a gift for a mortgage?
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; or
· a fiancé, fiancée, or domestic partner.
The donor may not be, or have any affiliation with, the builder, the developer, the real estate agent, or any other interested party to the transaction. – Arms Length…
If I use a gift, do I have to have any “skin in the game”? Do I have to have any of my own money?
Minimum Borrower Contribution Requirements
If your down payment is more than 20% on 1 to 4 unit properties, 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.
If your down payment is less than 20% on 1 to 4 properties, The borrower must make a 5% minimum borrower contribution from his or her own funds. 1 After the minimum borrower contribution has been met, gifts can be used to supplement the down payment, closing costs, and reserves. – This is NOT the case with all investors or programs.
FHA and VA guidelines state - 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
What do I need to get to show my loan officer this is a gift?
Gifts must be evidenced by a letter signed by the donor, called a gift letter. The gift letter must:
The lender 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:
If I am out looking for houses with my favorite real estate agent and my mom writes the Ernest Money Deposit check…that’s my money right?
No, if mom writes your EMD that is a gift. Make sure the lender does not have a problem with this action.
If I get money for the holidays and I deposit it into my account, that not a gift…it’s my money right?
No, if you are given holiday money that you deposit and then try to buy a home in January, we will see the deposit in your December bank statement ask you to source it and it will have to be paper trailed as a gift.
Let me know if you need anything or have any follow up questions….
Branch Manager/Vice President
NMLS ID# 790493
Presidential Bank Mortgage, a Division of Presidential Bank, FSB
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