Gift Funds | Using Gift Funds for Down Payment | Mortgage Gift Letter
Are you looking to use gift funds for down payment on a home? Using gift funds for a down payment has a process because of guidelines about acceptable sources, being verified, and being properly documented. To avoid any delays in financing, it is recommended that you talk to a Loan Originator about acceptable sources for a down payment on a home.
Seasoned and Sourced Gift Funds for Down Payment
When applying for a mortgage, a Loan Originator and the underwriter will ask for the most recent two months of bank statements. If they see large deposits on a bank statement, they will ask them to be sourced. Sourcing large deposits during the pre-approval process will prevent any delays during underwriting and avoid a last minute denial.
If there are large deposits that are older than two months and do not reflect on the most recent two months bank statements, they do not have to be explained.
Loan Programs and Gift Funds
FHA, VA, USDA, and conventional loan programs view gift funds differently, but all have a similar process to sourcing the funds.
For FHA mortgages, acceptable sources of gift funds may be provided by:
- Family member of the borrower.
- Employer or labor union of the borrower.
- Charitable organization.
- A government agency or public entity with a program providing homeownership assistance to:
- Low or moderate income families or first time home buyers.
- First-time home buyer
FHA grants can help with paying for the down payment and/or closing costs.
VA loans have 100% financing, but sometimes closing costs are not covered by all the credits.
- Gift funds may be used by the borrower from an individual whom they have an established relationship with, but unacceptable by any person with a financial interest in the transaction such as the seller, realtor, builder, or Loan Originator.
- Seller concession is acceptable.
For USDA loans, gifts funds can be provided by a applicant’s relative, employer or labor union, charitable organization, or government agency or public entity with a program similar to FHA mortgages.
For conventional loans, gifts can be provided by:
- Relative, such as a borrower’s spouse, domestic partner, fiancé, fiancée, child or other dependent, by any other individual related to the borrower by blood, marriage, adoption or legal guardianship.
Are you looking for down payment assistance? Ask about the down payment assistance programs with no repayment required.
Gift Letter Template for Mortgage
A gift letter template can be provided by a Loan Originator and may vary by lender. A gift letter template for a mortgage should include the following:
- Application Number.
- Donor’s Name.
- Information on if it has been given or will be given with the total amount.
- Relationship to the borrower.
- Location of the property.
- It should state that that the donor certifies that there is no repayment expected or implied either in form of cash by future services from the borrower.
- Information of donor’s account: type of account, account number, name of depository, signature of donor(s), printed name of donor, address of donor, and telephone number.
- Proper disclosures about false statements.
- Applicant’s signature.
- Additional statement by donor to homebuyer followed by a signature of donor(s).
Gift letters vary by mortgage company and should be filled out prior to the pre-approval to streamline the loan process.
Other Documents – Gift Letter Template When Using Gift Funds for Down Payment
For government loans, the instructions should follow below:
When gift funds are not deposited to the home buyer before closing:
- Need evidence that the withdrawal of funds came from the donor’s personal account by providing a copy of bank statement with either a copy of the cashier’s check, money order, or other type of bank check.
When borrowing a gift, need evidence from donor that funds came from an acceptable source such as retirement, stock, bonds, other securities, trust account, income tax refund, life insurance, or equity.
If gift funds are deposited to a home buyer account prior to closing:
- Donor’s withdrawal slip or cancelled check showing the account number.
- A copy of the borrower’s bank statements or transaction summary with ledger balance showing the deposit to the borrower’s account.
The donor’s bank statements are always required in order to ensure gift funds are from an acceptable source no matter how they are transferred.
Avoiding Down Payment Underwriting Issues
Some common mistakes include donor’s having cash on hand or using an ATM receipt because they often do not show a borrowers name, account number, and which funds were deposited. Talking to a loan specialist prior to moving money around will avoid any unforeseen delays.