Who Is An Acceptable Donor To Provide Gift Funds For A Mortgage?

By
Mortgage and Lending with George Souto NMLS #65149 FHA, CHFA, VA Mortgages NMLS #65149
http://actvra.in/ZhB

Earlier this week I wrote a blog titled UpDate Your Blogs And Keep Information Current, Accurate, And Relevant.  The blog was about updating past blogs to keep the information current an accurate, but also to update the format of some past blogs to make the information easier to read, and follow.  I mentioned in that blog I would be updating a series of blogs I did about a year and a half ago on Gift Funds.  I choose to start with Gift Funds for three reasons.

  • First, there have been some subtle changes to the information I previously provided on documenting Gift Funds.
  • Second, I wanted to change the format I originally presented the information
  • Third, I wanted to add a blog on Gifts of Equity which I did not blog about before

The first revision will be on Who Is An Acceptable Donor To Provide Gift Funds For A Mortgage?  The Second blog I will go over the documentation that is required.  The third blog will be on Gift of Equity.  This first blog is basically a format change.  When I first presented this series, I covered Acceptable Donors, and Gift Fund Documentation all on one blog for Fannie Mae, and on a second blog for FHA.  Going back and reviewing those blogs it occurred to me the material would best be presented as Who Is An Acceptable Donor To Provide Gift Funds For A Mortgage? All on one blog for both Fannie Mae and FHA, and the information for the Required Documentation for both Fannie Mae and FHA on another blog.  That way readers can see the difference between the two without going back and forth between blogs.

I wrote earlier this month about it being very common these days for Borrowers to need Seller Paid Closing Costs in order to be able to purchase a home.  Gift Funds are also another very common source for Borrowers who do not have sufficient funds of their own to purchase a home. Therefore, when Gift Funds are going to be part of the funds to purchase a home, it is important to establish early on Who Is An Acceptable Donor To Provide Gift Funds For A Mortgage?  The answer to this question depends on whether the Borrower is applying for a Conventional Mortgage or a FHA Mortgage.

FHA Acceptable Donors:

  • The Borrower's Relative
  • The Borrower's Employer or Labor Union
  • A Close Friend - If the Borrower can CLEARLY define and document interest in the Borrower.  This is not easy to do, and documentation is very tricky.  There has to be a CLEAR defined connection.
  • A Charitable Organization
  • A Government Agency or Public Entity who has a program providing Home Ownership Assistance

NOTE:  All of the Downpayment Funds can be Gift Funds, none of the funds have to be from the Borrower.

Conventional Mortgage Donors:

  • A Relative, defined as the Borrower's:
    • Spouse
    • Child
    • Dependent
    • Individual who is related to the Borrower by:
      • Blood
      • Marriage
      • Adoption
      • Legal Guardianship
  • A Fiancé, Fiancée, or Domestic Partner

NOTE:  5% of the Downpayment Funds have to be from the Borrowers own funds, unless the Gift Funds are for 20% or more of the Sales Price, in which case none of the Gift Funds have to come from the Borrower.

Not An Acceptable Donor:

The Donor cannot be a person or entity who has an interest in the sale of the property such as:

    • Builder
    • Developer
    • Real Estate Agent (even if the Real Estate Agent is a relative of the Borrower)
    • Any other interested party to the transaction.

NOTE: Gifts from the above sources are considered inducement to purchase the property, and will be reduced from the sales price.

It is important to discus Who Is An Acceptable Donor To Provide Gift Funds For A Mortgage, as soon as it is determined Gift Funds are going to be part of obtaining a Mortgage.  The reason it is so important, is if the Donor does not meet the above qualifications, the Borrower will not be allowed to use the funds towards the purchase, and be short of funds to Close on the property.

There are also different Documentation requirements for FHA and Conventional Mortgages, and I will cover that as I state in the beginning in the next blog "What Are The Documentation Requirements For Gift Funds?"

 

*******************************************************************************

 Info about the author:

George Souto NMLS# 65149 is a Loan Officer who can assist you with all your FHA, CHFA, and Conventional mortgage needs in Connecticut. George resides in Middlesex County which includes Middletown, Middlefield, Durham, Cromwell, Portland, Higganum, Haddam, East Haddam, Chester, Deep River, and Essex. George can be contacted at (860) 573-1308 or gsouto@mccuemortgage.com

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Re-Blogged 3 times:

Re-Blogged By Re-Blogged At
  1. Maria Gilda Racelis 08/02/2013 05:16 AM
  2. Joni Bailey 08/02/2013 07:27 PM
  3. Roy Kelley 08/05/2013 12:48 AM
Topic:
Mortgage / Finance
Location:
Connecticut
Groups:
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Mortgages
1st Time Buyers
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mortgage gift funds

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Show All Comments
Rainmaker
1,049,541
Gene Mundt, IL/WI Mortgage Originator - FHA/VA/Conv/Jumbo/Portfolio/Refi
NMLS #216987, IL Lic. 031.0006220, WI Licensed. APMC NMLS #175656 - New Lenox, IL
708.921.6331 - 40+ yrs experience

Excellent update on this topic, George.  Those considering becoming a "Gifter" need to know what to expect as the receiver of the gift heads into financing.  The better educated and prepared they are to answer any and all questions raised by their generous actions ... the better.  As always, your post definitely educates and prepares your readers well ...

Gene

Aug 02, 2013 07:06 AM #19
Rainer
27,172
Thomas Turner
Caliber Home Loans, Inc. - Shelton, CT
Tom Turner

George,  great job on describing the "ins and outs" of gifting sources.

Aug 02, 2013 07:23 AM #20
Rainer
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Jack O'Neal
Conway Real Estate - Gilbert, AZ

Good information to know, to avoid any problems

Aug 02, 2013 09:49 AM #21
Rainmaker
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Lisa Von Domek
Lisa Von Domek & Associates LLC Team - Dallas, TX
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Hello George,

The lending rules are constantly changing and with Washington in the mix, they don't have to make sense!  LOL  Another great post, another great reason why a strong mortgage professional is required for a successful transaction.

Aug 02, 2013 10:06 AM #22
Rainmaker
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Carla Muss-Jacobs, Principal Broker (503) 810-7192
BuyersAgentPortland.com | Portland Metro Exclusive Buyers Agent | 100% Buyer Representation ~ 100% of the Time - Portland, OR
Buyer Focused ~ Buyer Results

Borrowers and "gift funds" need to be careful and kosher with the IRS regarding these types of things too.  The IRS wants to tax gift funds over a certain amount.  

Aug 02, 2013 10:26 AM #23
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George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
Your Connecticut Mortgage Expert

Bill R.  when you find someone you trust and can work with, stick with them

Fred the parents are as an acceptable a Donor as they get, and FHA allows up to 6% of the Selling Price to be paid by the Seller toward Closing Costs (can contribute more than the actual Closing Costs) so you should be in great shape.

Gene thank you.  Yours blogs do an excellent job of doing the same thing as well, that is why I make it a point to read them.

Thomas, thank you and I hope the information in the blogs comes in handy for you someday.

Jack avoiding problems is a major part of the battle.  The more problems we can eliminate, the quicker the Closing.

Lisa a very insightful statement about Washington on your part ..... LOL

Aug 02, 2013 10:26 AM #24
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George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
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Carla you snuck in there while I was making the above comments.  Thank you for adding that.  I have enough to get in trouble with on my end, so I leave that up to the Accounts to discuss with them.  But your point is well taken and they need to be advice to speak to their Accountant if it is a sizable gift, just to make sure they have all there facts, and not surprised later.

Aug 02, 2013 10:30 AM #25
Rainmaker
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Joan Whitebook
BHG The Masiello Group - Nashua, NH
Consumer Focused Real Estate Services

George  - This is a great series to repost because the questions are still being asked. Some sellers are not in a position to offer concessions, so knowing possible sources of gift money is an important option for buyers.

Aug 02, 2013 12:32 PM #26
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Joni Bailey
Berkshire Hathaway Home Services - Anderson Properties - Huntsville, TX
Your Huntsville / Lake Livingston Area REALTOR®

"If the Borrower can CLEARLY define and document interest in the Borrower."

What does this mean? I'm not getting it. YIKES!

Aug 02, 2013 01:52 PM #27
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George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
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Joan, I run into that a few times, but more often it is the Borrower not having money in savings.  It is amazing how many Borrowers have good income but have not saved any of it, they spend as much as the have.

Joni, an example would be two people who live together.  They maybe in a relationship but not married, or just two good friends who have shared an apartment for a while.  The Borrower would be able to document the friendship buy showing they have shared the expenses of the apartment for about a year, or it could be producing tax returns showing they both have lived at the same address on a couple of tax returns, or maybe they share a bank account used to pay bills and produce bank statements for 12 months.  Anything along those lines would establish the connection between the two and create an acceptable donor.  Hope that answers your question, if not, let me know and I will see if I can do a better job of explaining it.

Aug 02, 2013 02:19 PM #28
Rainmaker
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Signature Homes & Estates
Signature Homes & Estates - Gilroy, CA
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George, thanks for pointing this out.  I think many agents do not know about the Chritable organization being a donor.  Seek them out and help people get on the first rung of a property ladder.

Aug 02, 2013 02:56 PM #29
Rainer
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Scott Comey
RE/MAX Elite - Everett, WA

All great info.  Thanks for posting this.  Will be helpful with my first time homebuyers.

Aug 02, 2013 03:00 PM #30
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Thanks for the current and accurate information on what makes an appropriate gift donor.
Aug 02, 2013 04:06 PM #31
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Praful Thakkar
eXp Realty - Andover, MA
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George, another informative and interesting reading. I always had my buyer NOT to take a gift while they are buying and also I tell them not to borrow money at 0% on credit cards!

Do you have a list of 'what not to do' for first time home buyers? Would appreciate if you can share it.)

Aug 02, 2013 04:42 PM #32
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Joni Bailey
Berkshire Hathaway Home Services - Anderson Properties - Huntsville, TX
Your Huntsville / Lake Livingston Area REALTOR®

OH!! Okay! I get it now. Thanks for the explination. I will reblog this baby!! Good stuff!!

Aug 02, 2013 05:45 PM #33
Rainmaker
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Patrick White
Home Driven Realty, Inc - Baldwin, NY
Driven to bring New Yorkers home

Good Morning John

 

Thanks for the post and information. Have a great day

Aug 02, 2013 08:06 PM #34
Rainmaker
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Bill and MaryAnn Wagner
Wagner Real Estate Group - Galloway Township, NJ
Jersey Shore and South Jersey Real Estate
Thanks for the update George. Great information, as always!
Aug 02, 2013 11:12 PM #35
Rainmaker
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Jane Chaulklin-Schott
TEAMCONNECT REALTY - (407) 394-9766 - Orlando, FL
TeamConnect Luxury Homes - Orlando, Florida, 32836
George ~ Appreciate your revision and update and looking forward to the series. Great on format and thorough data. Thank you!
Aug 02, 2013 11:30 PM #36
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Debbie Reynolds
Berkshire Hathaway HomeServices PenFed Realty, Your Clarksville Real Estate Professional - Clarksville, TN
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Great information George and will add to my collection for my buyers. Have a great day.
Aug 03, 2013 12:46 AM #37
Rainmaker
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Hella Mitschke Rothwell
(808) 226-1095 or (831) 626-4000 - Honolulu, HI
Hawaii & California Real Estate Broker

George Souto - Excellent information. Guidelines do change some and I appreciate your updating the blogs.

Oct 17, 2014 01:38 AM #38
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