Did you know most loan programs allows a borrower to receive money in the form of a "Gift" from certain individuals that can be utilized for Downpayment, Closing Costs or Asset Reserves!
Below is the rules and guidelines which a borrower must follow in order to receive a gift.
A principal residence or second home borrower may use funds received as a personal gift from an acceptable donor to pay closing costs or to supplement his or her financial reserves. The borrower generally must use his or her own funds to make the required minimum cash down payment, although that down payment may be supplemented with a gift. Gifts are not allowed for investment property transactions.
Reason for all of this paperwork?
Unfortunately in the past, gift funds have come from illegal activity and are used to launder money. These monies have come from drug proceeds, then utilized to purchase homes. So the governement has required that all monies coming into a home buying transaction needs to be "Sourced" and "Seasoned"
- Sourced: Meaning we have to know exactly where the money has came from, i.e. savings account, retirement account. Not illegal activities, matress money, found money.
- Seasoned: Lenders are required to verifiy that the money has been in a bank account for a minimum 2 months.
Think of it this way: A person can legally sell a pound of marijuana in the State of Colorado, or Washington or Oregon. But here in Idaho, this is still an illegal drug. A person would not be able to utilize the money from the sale in Idaho.
We are NOT saying that everyone is a drug dealer, but under the Federal Laws, that regulate real estate transactions, we have to be fair and treat all people equally.
More information can be found on the following Government Web Site: https://www.fincen.gov/
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.
Minimum Borrower Contribution Requirements
If the gift is less than 20% of the sales price, the lender must document that the borrower contributed his or her own funds equal to at least 5% of the purchase price of the property.
This requirement does not apply to the following:
- MyCommunityMortgage loans (see B5-6-03, MyCommunityMortgage Underwriting Methods and Requirements (10/30/2009),
- Flexible mortgages (see B5-2.3-02, Flexible Mortgage Underwriting Requirements (12/30/2009), and
- any other scenarios that otherwise permit gift funds to be used to satisfy the borrower’s down payment requirement (as outlined below).
Exceptions to the Minimum Borrower Contribution Policy Regarding Gifts
Fannie Mae permits borrowers to use gift funds for some or all of the minimum contribution in the following situations:
- Borrowers may pool their funds with gift funds received from one of the following sources:
- a relative or domestic partner who has lived with the borrower for the last 12 months, or
- a fiancé or fiancée, as long as both individuals will use the home being purchased as their principal residence.
- When a mortgage has an LTV ratio of 80% or lower (or combined LTV ratio, for mortgages that have subordinate financing), gift funds from an acceptable donor may be used to make the entire down payment.
Gifts must be evidenced by a letter signed by the donor, called a gift letter. The gift letter must:
- Specify the dollar amount of the gift;
- specify the date the funds were transferred;
- include the donor’s statement that no repayment is expected; and
- indicate the donor’s name, address, telephone number, and relationship to the borrower.
1st Choice mortgage has Approved Gift letters on hand to assist in this.
When a gift from a relative or domestic partner is being pooled with the borrower’s funds to make up the required minimum cash down payment, the following items must also be included:
- A certification from the donor stating that he or she has lived with the borrower for the past 12 months and will continue to do so in the new residence.
- Documents that demonstrate a history of borrower and donor shared residency. The donor’s address must be the same as the borrower’s address. Examples include but are not limited to a copy of a driver’s license, a bill, or a bank statement
Verifying Donor Availability of Funds and Transfer of Gift Funds
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:
- A copy of the donor’s check.
- A copy of the borrower’s deposit slip.
- A copy of the donor's bank statement, one month, all pages, showing the donor's ability to make such a gift. (NOTHING can be blacked out)
- A copy of the borrower's bank statement showing money being deposited,and current balance.
- Typically borrower will have to go to the bank and have the bank print out statement, that statement will then need to be "Teller" stamped by the bank, signed and dated by the bank.
- A copy of the donor's bank statement, showing the gift funds have been removed from the donor's account.
- Typically the donor will have to go to the bank and have the bank print out statement, that statement will then need to be "Teller" stamped by the bank, signed and dated by the bank.
LENDERS TYPICALLY REQUIRE THAT THE GIFT FUNDS BE IN THE BORROWER’S ACCOUNT AND VERIFIED ATLEAST 7 DAYS PRIOR TO CLOSING.