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.

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Comment balloon 23 commentsJon Sigler • July 26 2013 06:50PM

Comments

Excellently detailed article, Jon.  Remember back in the day when the seller could make a contribution to the nonprofit organization that provided funds to the buyer?

Posted by ReadySetLoan Condo Approval Team, The FHA/VA Condo Project Approval Specialists (ReadySetLoan Condo Team LLC) almost 4 years ago

This is very helpful for buyers, sellers and agents. 

Posted by Lenn Harley, Real Estate Broker - Virginia & Maryland (Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate) almost 4 years ago

Jon:  So many of my transactions have included gifts, as of late.  Especially the young buyers.  Very timely info ...

Congrats on the Feature!

Gene

Posted by Gene Mundt, IL/WI Mortgage Originator - FHA/VA/Conv/Jumbo/Portfolio/Refi, 708.921.6331 - 40+ yrs experience (NMLS #216987, IL Lic. 031.0006220, WI Licensed. APMC NMLS #175656) almost 4 years ago

Eric, much like the days of the wild west!  Times they are a changing.

Lenn, agree,  plan ahead with a gift and make sure it will be okay, otherwise no matter how much money down the deal is dead.

Gene, thank you!  Gifts do seem to be popular of late!

Posted by Jon Sigler, CT Loan Officer 860-306-8029 (Citizens Bank, NMLS#119288) almost 4 years ago

Jon.  Sadly, the FHA buyer is often disappointed when the "giver" changes his/her mind.    I've had that happen more than a few times.

Posted by Lenn Harley, Real Estate Broker - Virginia & Maryland (Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate) almost 4 years ago

Oh wow!  Never had that happen.  Countless times where the giver or receiver don't follow the rules on what paper we need about the gift and it caused delays or worse.

Posted by Jon Sigler, CT Loan Officer 860-306-8029 (Citizens Bank, NMLS#119288) almost 4 years ago

There were a couple times in my experience that they gift was taken away. Better have Plan B and C lined up.

Posted by Harry F. D'Elia, Investor , Mentor, GRI, Radio, CIPS, REOs, ABR (Real Estate and Beyond, LLC) almost 4 years ago

I agree with Harry.  The sellers gift was a helpful feature.  The government has no business telling a home seller how they can spend their own money.

Posted by Lenn Harley, Real Estate Broker - Virginia & Maryland (Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate) almost 4 years ago

Thanks for the advice. Not that many FHA buyers in Destin. Lots of VA buyers.

Posted by Bill Reddington, Destin Florida Real Estate (Re/max Southern Realty) almost 4 years ago

Jon, thanks for the great information. It is very timely as we were just talking about this concerning an FHA buyer.

Posted by Tom White, Franklin Homes Realty LLC, Franklin TN (Franklin Homes Realty LLC (615) 495-0752 or www.FranklinHomesRealty.com) almost 4 years ago

Great post.  Good refresher.  I seemed to have forgotten that a seller cannot provide a gift towards the home purchase under FHA.

Posted by Jay & Michelle Lieberman, Creating Calm in the Buying and Selling Chaos (Keller Williams World Class) almost 4 years ago

Jon - Thank you for sharing excellent blog about list of acceptable sources of gifts for an FHA loan.

Posted by John Pusa, Your All Time Realtor With Exceptional Service (Berkshire Hathaway Home Services Crest) almost 4 years ago

Are there "gift" limits and how does this play with the IRS stipulations on taxable gifts in a tax year?  Thanks in advance.

Posted by Carla Muss-Jacobs, Principal Broker (503) 810-7192, Buyer Focused ~ Buyer Results (BuyersAgentPortland.com | Portland Metro Exclusive Buyers Agent | 100% Buyer Representation ~ 100% of the Time) almost 4 years ago

Gifts should never have an obligation attached to them.

 

Love and light,

Laura

Posted by Laura Cerrano, Certified Feng Shui Expert, Speaker & Researcher (Feng Shui Manhattan Long Island) almost 4 years ago

Lenn, totally agree with you that if a seller wants to give a buyer what is needed to buy their house so be it.  The default rates on those transactions was much higher and all guidelines are based in lowering the possibility of default.

Bill, that is a great idea for a post.  Even though a VA loan is often for 100% of the purchase price, there are still closing costs, or the borrower could want to put money down...

Tom, good luck with that FHA buyer!

Jay and Michelle, seems as though many of us look fondly to the time when the seller could help a buyer with their down payment.  The good old days!

John, thanks for stopping by!

Carla, great questions!  I feel they both should be a part of the original article and have attempted to answer them there.

Laura, agree completely!

Posted by Jon Sigler, CT Loan Officer 860-306-8029 (Citizens Bank, NMLS#119288) almost 4 years ago

Thank you!

I thought i knew all this, but glanced anyway... and was surprised to learn about the buyers labor union. New info for me.

 

Posted by Brian DeYoung, Brian DeYoung (Realty USA- Howard Hannah) almost 4 years ago

Brian, the employer and labor union are technically allowed by FHA, but I decided to included them on the unacceptable sources since I couldn't locate any lender allowing them.  

Yale University here in CT does have a program to help their employees buy a home.  It is an allowable source, but it is not a gift.  It is a 2nd mortgage that is forgiven over a period of time.

Posted by Jon Sigler, CT Loan Officer 860-306-8029 (Citizens Bank, NMLS#119288) almost 4 years ago

I have buyers ask about "wedding money" .. it comes from various sources.. including family and friends.. and sometimes is several thousand dollars.  Will this fly? 

Posted by Joan Whitebook, Consumer Focused Real Estate Services (BHG The Masiello Group) almost 4 years ago

Great info all in one place and easily found through AR search!  Thank you!

Posted by Rob Lang, Local Expert in Lawrence Kansas Real Estate Homes (At Home Kansas / www.AskRobLang.com) almost 4 years ago

Thank you for the information. I will bookmark this post.

Posted by Gita Bantwal, REALTOR,ABR,CRS,SRES,GRI - Bucks County & Philadel (RE/MAX Centre Realtors) almost 4 years ago

Joan, yes, wedding gifts are generally acceptable.  Documenting them is a little different though.

Rob and Gita, thanks for stopping by, hope the information is helpful for you!

Posted by Jon Sigler, CT Loan Officer 860-306-8029 (Citizens Bank, NMLS#119288) almost 4 years ago

Thanks for this recap... so many FHA buyers are first-time buyers and don't have a clue as to what they can or can't do legally.

Posted by Nina Hollander, Your Charlotte/Waxhaw/Fort Mill Area Realtor (RE/MAX Executive | Charlotte, NC) almost 4 years ago

Nina, glad you found the information useful!

Posted by Jon Sigler, CT Loan Officer 860-306-8029 (Citizens Bank, NMLS#119288) almost 4 years ago

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