Acceptable Sources of Gifts For An FHA Loan

Acceptable Sources of Gifts For An FHA Loan

Borrowers who are looking into getting an FHA loan often ask about what are the acceptable sources of gifts for an FHA loan.  They ask because they really would like to buy a home but lack a down payment.  Some ask to make sure the gift they expect to get will be okay for them to use.

FHA is a great loan option for a borrower who may be using a gift for their down payment.  All of the money a borrower needs to put down can come from a gift.  

Acceptable Sources of Gifts For An FHA Loan

So what are the acceptable sources of gifts for an FHA loan?

Eligible sources include:

  • Relatives (parent, child, other dependent, individuals who are related to the borrower by blood, marriage, adoption or legal guardianship)

  • Spouse

  • Domestic partners

  • A close friend with a clearly defined and documented interest in the borrower

  • A charitable organization that does not replenish available gift funds with seller contributions

  • 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

Ineligible donors include:

  • Any person or entity with an interest in the sale of the property, including but not limited to:
  • The builder
  • The seller
  • The developer
  • The real estate agent
  • The mortgage broker
  • Other interested party to the transaction

  • The borrower’s employer
  • The borrower’s Labor Union

  • Any gift or down payment assistance source where the provider is reimbursed either directly or indirectly by the seller or any interested third party, commonly known as “seller-funded” DPA.

Gifts no matter the source must be a true gift without an obligation for repayment by the recipient.  They must also be fully documented which doing properly and completely is very important.  Where the money came from, proof that it was deposited into the borrowers account and a signed gift letter briefly describe what is needed to document the gift for the loan.  We should talk about the possibility of a gift as early as possible, certainly before a transfer has been made at the bank.

Gifts can open the door of home ownership to many people.  If you have any questions on acceptable sources of gifts for an FHA loan please call me at 860-306-8029!

Photo from http://www.flickr.com/photos/amagill/

A great question was posed by Carla Muss-Jacobs the questions that I want to add to the article to answer it.  Are there gift limits.  There are no limits from FHA on the amount of gift in a transaction.  All of the money a borrower needs for either down payment or closing cost may come from an acceptable source.  How does this play with the IRS stipulations on taxable gifts in a tax year?  How a gift impacts either the doner or recipient and their tax obligations is a question for a qualified tax professional.    

 

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If you or someone you know is thinking of buying or selling property in Connecticut or is looking to refinance their home in Connecticut -Please give Jon Sigler, Mortgage Banker (NMLS#119288) a call at 860-306-8029. Be sure to check out Jon's website Embrace Home Loans and his blog.

As quoted in the New York Times "A Little-Known Loan Program", and in the Hartford Courant "Moving In:Couple Combining Households Buys In Newington" and "Moving In... New Britain"

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This is not an offer or commitment to lend. Articles, information and commentary are offered for informational purposes only, and should not to be relied on as legal, tax or financial advice. Consumers should retain their own legal, tax and financial professionals for such advice.

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