Gift Letter Form & Gift Funds Documentation Required

This blog is the second of three blogs on Gift Funds.  In the first blog I covered  Who Is An Acceptable Donor To Provide Gift Funds For A Mortgage?  In this second blog I will cover the Gift Letter Form & Gift Funds Documentation Required, and the third blog will be on Gift of Equity.

Gift Funds just like Seller Paid Closing Costs are very common these days in the purchase of a home. One or both occur when the Borrower(s) do not have sufficient funds of their own to purchase a home. Therefore, when Gift Funds or Seller Paid Closing Costs are going to be part of the funds to purchase a home, it is important to go over early on with the Borrower  the Gift Letter Form & Gift Funds Documentation  which will be be required during the mortgage process.

The Gift Letter required for Conventional and FHA Mortgages are the same, but as you will see below the documentation is slightly different between the two. The information below is in bullet form in order to present the information in what I feel is the easiest format understand the information. 

Gift Letter Form For Conventional & FHA:

• Gift Letter is signed by the Borrower and the Donor stating the following:
• Donor's name, address, and phone number
• Dollar amount of the gift
• Date the funds are transferred
• Must state that no repayment is expected
• Relationship to Borrower

Documentation Of Gift Funds For Conventional & FHA:

• Conventional Required Documents to verify gift:
• Copy of donor's check & Borrower's deposit slip, or
  
• Copy of donor's withdrawal slip & Borrower's deposit slip, or
  
• Copy of the donor's check to a Closing Agent, or
  
• A settlement statement showing receipt of the donor's check

• FHA Required Documents to verify gift:
• Copy of the donor's gift check.
• Borrowers bank statement showing the money being deposited.
• Copy of Donor's bank statement or bank printout showing the money coming out of the Donor's account.

NOTE: 

• Lenders will not give a Clear To Close unless they have proof the Borrower has sufficient funds to Close, which means they will require seeing the funds in the Borrowers Bank Statement or Bank Printout prior to giving a Clear To Close.

• Even though Fannie Mae will allow for just a copy of the donor's withdrawal slip & Borrower's deposit slip, most Lender's will require a copy of the check as well, which means that ALL gifts should ALWAYS be made by check.
  

• Cash cannot be documented so it is not an acceptable form of Gift Funds.  Also Money Orders or Bank Checks are considered a form of Cash, and are difficult to document the source of the Funds.  Personal checks are always best.

• The major difference between FHA and Fannie Mae is that the donor must provide a copy of their bank statement showing the money being withdrawn.  Fannie Mae does not require this.

• Many time the donor does not want to provide a copy of their bank statement, because they do not want the Borrower to know their personal finances.  Therefore, I always tell them to send the bank statement directly to me so the Borrower does not have access to that information.

• Wedding Funds are hard to document, but if properly documented may be use. The Borrower will need to show documentation such as:

• Wedding announcement
• Shower Invitation
• News Paper announcement

These documents must clearly identify the date of the Wedding or Wedding Shower, and money must be deposited within a time close to the Wedding or Shower, in order to make the connection as clear as possible.  Borrower need to talk to their Loan Originator before attempting to use Wedding or Shower Gift Funds, to insure the Lender will allow it.  It is important to remember just because the Guidelines permit something, it does not mean the Lender or Investor will.

This concludes Gift Letter Form & Gift Funds Documentation Required.  Tomorrow I will finish up this series explaining what a Gift of Equity is, documentation, how it works, and acceptable Donors.