As the holiday season draws near, our thoughts naturally turn to the joy of giving. While we all appreciate receiving gifts for special occasions, there's something truly extraordinary about presenting a gift that can make someone's homeownership dreams come true. If you or someone you know is looking to purchase a home during this holiday season, consider the incredible gesture of providing a down payment as a gift.

However, using gift funds for a down payment involves specific guidelines and considerations that are essential to understand. In this article, we'll explore the different loan programs that allow borrowers to use gift funds towards their down payment.

FHA Loan Gift Fund Guidelines

Gift Funds Eligibility for FHA Loans:

• If you apply for an FHA loan, your gift funds must be from family or another eligible donor.

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

• The FHA allows gifts from your employer, a labor union or from charitable organizations.

• You can use funds from government agencies or public entities that help low-to-moderate income or first-time home buyers.

• Cousins, nieces, and nephews are not able to offer gift money under standard family guidelines.

How Can FHA Gift Funds Be Utilized?

• Gift funds can be used to cover things such as the down payment, FHA closing costs, or even the reserves needed for approval. In addition, if the gift is large enough, it could cover everything mentioned above.

• Your down payment can come from gift funds if your credit score is above a certain amount. However, the down payment used for an FHA loan cannot come from another loan or source where the down payment needs to be repaid (i.e., another loan or credit card advance)

• Finally, FHA Gift Funds can be used on primary residences only.

Conventional Loan Gift Fund Guidelines

Most conventional mortgage loans allow homebuyers to use gift funds for their down payment and closing costs, provided the gift comes from an approved source, such as family members.

Approved Sources of Conventional Loan Gift Funds:

Fannie Mae & Freddie Mac define family as:

• Parent
• Children (including adopted, step and foster children)
• Sibling (including step-sibling, foster and adopted siblings)
• Grandparent (including great-grandparents, step and foster grandparents)
• Aunt and uncle (including great, step and foster aunt or uncle)
• Niece or nephew (including step-niece or nephew)
• Cousins (including adopted and step-cousins)
• In-laws (including parents and grandparents, aunt, uncle brother- and sister-in-law)
• Domestic partner
• Fiancé

What Can Conventional Loan Gift Funds Be Used For?

• Gift money can only be used on primary residence and second homes.

VA / USDA Loan Gift Fund Guidelines

VA Home Loans  and USDA  Home Loans do not have many restrictions when using gifts for a down payment.

Who Can & Can’t Give VA/USDA Loan Gift Funds:

• Must come from a family member.

• The gift cannot be from someone who is an interested party. An interested party would be someone who has a role in your transaction, such as a builder or developer, another broker, a real estate agent or the seller.

What Can VA/USDA Loan Gift Funds Be Used For?

• You can use gift money for your down payment with a VA Home Loan and a USDA Home Loan.

• Because they are 100% financing, there is no limit on the amount of the gift.

Can a Mortgage Gift be Repaid?

No, a mortgage gift is just that – a gift. The giver provides funds to a homebuyer with no expectation of repayment.

Will I Need to Provide a Gift Letter?

Yes, before using gift funds, you must submit a gift letter to your lender. This letter confirms your relationship with the gift giver and affirms that the funds are a gift with no expectation of repayment. Some things to include inside your letter are:

• Dollar amount of gift

• Date funds were transferred

• Gift Giver’s signed statement that no repayment is expected

• Gift Giver’s name, address, and phone number along with the relationship to the borrower & buyer

• The address of the property being purchased

Check with your loan officer to see what information is required in your gift letter.

Keep in mind, gift funds in all cases will need to be documented. If you know you are about to receive a holiday infusion of cash, doing so by check is the easiest and often most convenient way to satisfy the lender.

What If a Down Payment Gift Isn't an Option?

Not everyone has the fortune of receiving a mortgage gift, but there are alternatives for those with limited down payment funds. Saving more money or extending your home-buying timeline to accumulate funds is an option. You can also explore ways to increase your cash flow, like taking on a second job or a side hustle. Additionally, consider down payment assistance programs or low or no down payment loan options, such as VA, USDA, FHA, or conventional loans, depending on your eligibility.

Gift funds can make homeownership achievable for many aspiring homeowners. If you have questions or want to learn more about how gift money works, reach out to one of our expert Loan Officers today.

Wishing you a joyous holiday season from Greenway Mortgage!