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:
- Individual who is related to the Borrower by:
- 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:
- 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 firstname.lastname@example.org