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FHA Down Payment Gift Funds: Gift Letter Information

Posted on September 26 By Justin McHood

Many first time home buyers choose the FHA loan program to finance their first home. The main reason for this is that a FHA mortgage makes it easy for them to get into a home with a low (3.5%) down payment and competitive interest rates. They also offer options for home buyers to "buy down" the interest rate and allow underwriters to manually approve their loan if they meet the criteria but cannot get approved through the Automated Underwriting System.

But by far one of the more common questions I am asked by first time home buyers who want to get an FHA loan is "can I have someone give me my down payment?"

Yes is the official answer - but it should probably be not just a Yes or No -- It should be more of a "Yes, but..."

FHA allows parents to give the down payment to their kids. Or grand parents to their grand children. Or pretty much any immediate family member within reason. The gift cannot be from a "non profit" organization.

Officially, there isn't a limit as to how much a first time home buyer can receive as a gift, but there are usually some rules that must be met if there is going to be a gifted down payment. First you will need a gift letter that will be submitted with the file to the underwriter that meets these rules:

  • Must be from an immediate relative or someone that you have had a long standing relationship with. Yes, there is a little bit of gray area here.
  • The person giving the gift must be independent of the entire transaction.
  • The funds must be in the account for a period of time to be verified. Typically the underwriters call this "sourced and seasoned" meaning you can document where it came from and how long it has been there.
When putting a gift letter together, it is important to be as descriptive as possible. You want to describe the nature of the relationship of the person giving you the gift along with supporting documentation (bank statements) that shows the deposit into the home buyers account. You will also want to be sure to spell out that it is a GIFT and doesn't have to be paid back.

Occasionally, underwriters will want more information after they see a gift letter, but usually not if it contains the above basic information. After all, getting the gift of a down payment from someone you love shouldn't be that difficult of a thing to document... and it is one of the greatest gifts many first time home buyers could ever get!

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