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Acceptable Sources of Gifts For An FHA Loan

By
Real Estate Agent with Coldwell Banker Realty RES.0808054

Acceptable Sources of Gifts For An FHA Loan

Borrowers who are looking into getting an FHA loan often ask about what are the acceptable sources of gifts for an FHA loan.  They ask because they really would like to buy a home but lack a down payment.  Some ask to make sure the gift they expect to get will be okay for them to use.

FHA is a great loan option for a borrower who may be using a gift for their down payment.  All of the money a borrower needs to put down can come from a gift.  

Acceptable Sources of Gifts For An FHA Loan

So what are the acceptable sources of gifts for an FHA loan?

Eligible sources include:

  • Relatives (parent, child, other dependent, individuals who are related to the borrower by blood, marriage, adoption or legal guardianship)

  • Spouse

  • Domestic partners

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

  • A charitable organization that does not replenish available gift funds with seller contributions

  • A governmental agency or public entity that has a program to provide home-ownership assistance to low- and moderate-income families or first-time home-buyers

Ineligible donors include:

  • Any person or entity with an interest in the sale of the property, including but not limited to:
  • The builder
  • The seller
  • The developer
  • The real estate agent
  • The mortgage broker
  • Other interested party to the transaction

  • The borrower’s employer
  • The borrower’s Labor Union

  • Any gift or down payment assistance source where the provider is reimbursed either directly or indirectly by the seller or any interested third party, commonly known as “seller-funded” DPA.

Gifts no matter the source must be a true gift without an obligation for repayment by the recipient.  They must also be fully documented which doing properly and completely is very important.  Where the money came from, proof that it was deposited into the borrowers account and a signed gift letter briefly describe what is needed to document the gift for the loan.  We should talk about the possibility of a gift as early as possible, certainly before a transfer has been made at the bank.

Gifts can open the door of home ownership to many people.  If you have any questions on acceptable sources of gifts for an FHA loan please call me at 860-306-8029!

Photo from http://www.flickr.com/photos/amagill/

A great question was posed by Carla Muss-Jacobs the questions that I want to add to the article to answer it.  Are there gift limits.  There are no limits from FHA on the amount of gift in a transaction.  All of the money a borrower needs for either down payment or closing cost may come from an acceptable source.  How does this play with the IRS stipulations on taxable gifts in a tax year?  How a gift impacts either the doner or recipient and their tax obligations is a question for a qualified tax professional.    

 

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Comments(23)

Jon Sigler
Coldwell Banker Realty - South Windsor, CT
Sigler Sold Another! 860-306-8029

Eric, much like the days of the wild west!  Times they are a changing.

Lenn, agree,  plan ahead with a gift and make sure it will be okay, otherwise no matter how much money down the deal is dead.

Gene, thank you!  Gifts do seem to be popular of late!

Jul 27, 2013 12:45 AM
Lenn Harley
Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate - Leesburg, VA
Real Estate Broker - Virginia & Maryland

Jon.  Sadly, the FHA buyer is often disappointed when the "giver" changes his/her mind.    I've had that happen more than a few times.

Jul 27, 2013 01:05 AM
Jon Sigler
Coldwell Banker Realty - South Windsor, CT
Sigler Sold Another! 860-306-8029

Oh wow!  Never had that happen.  Countless times where the giver or receiver don't follow the rules on what paper we need about the gift and it caused delays or worse.

Jul 27, 2013 01:12 AM
Harry F. D'Elia III
WEDO Real Estate and Beyond, LLC - Phoenix, AZ
Investor , Mentor, GRI, Radio, CIPS, REOs, ABR

There were a couple times in my experience that they gift was taken away. Better have Plan B and C lined up.

Jul 27, 2013 01:35 AM
Lenn Harley
Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate - Leesburg, VA
Real Estate Broker - Virginia & Maryland

I agree with Harry.  The sellers gift was a helpful feature.  The government has no business telling a home seller how they can spend their own money.

Jul 27, 2013 01:54 AM
Bill Reddington
Re/max By The Sea - Destin, FL
Destin Florida Real Estate

Thanks for the advice. Not that many FHA buyers in Destin. Lots of VA buyers.

Jul 27, 2013 02:57 AM
Tom White
Franklin Homes Realty LLC (615) 495-0752 or www.FranklinHomesRealty.com - Franklin, TN
Franklin Homes Realty LLC, Franklin TN

Jon, thanks for the great information. It is very timely as we were just talking about this concerning an FHA buyer.

Jul 27, 2013 03:32 AM
Jay & Michelle Lieberman
Keller Williams World Class - Agoura Hills, CA
Creating Calm in the Buying and Selling Chaos

Great post.  Good refresher.  I seemed to have forgotten that a seller cannot provide a gift towards the home purchase under FHA.

Jul 27, 2013 03:38 AM
John Pusa
Glendale, CA

Jon - Thank you for sharing excellent blog about list of acceptable sources of gifts for an FHA loan.

Jul 27, 2013 03:41 AM
Carla Muss-Jacobs, RETIRED
RETIRED / State License is Inactive - Portland, OR

Are there "gift" limits and how does this play with the IRS stipulations on taxable gifts in a tax year?  Thanks in advance.

Jul 27, 2013 05:03 AM
Laura Cerrano
Feng Shui Manhattan Long Island - Locust Valley, NY
Certified Feng Shui Expert, Speaker & Researcher

Gifts should never have an obligation attached to them.

 

Love and light,

Laura

Jul 27, 2013 05:39 AM
Jon Sigler
Coldwell Banker Realty - South Windsor, CT
Sigler Sold Another! 860-306-8029

Lenn, totally agree with you that if a seller wants to give a buyer what is needed to buy their house so be it.  The default rates on those transactions was much higher and all guidelines are based in lowering the possibility of default.

Bill, that is a great idea for a post.  Even though a VA loan is often for 100% of the purchase price, there are still closing costs, or the borrower could want to put money down...

Tom, good luck with that FHA buyer!

Jay and Michelle, seems as though many of us look fondly to the time when the seller could help a buyer with their down payment.  The good old days!

John, thanks for stopping by!

Carla, great questions!  I feel they both should be a part of the original article and have attempted to answer them there.

Laura, agree completely!

Jul 27, 2013 06:22 AM
Brian DeYoung
also affiliated with Berkshire Hathaway Home Services Heritage Realty - Ithaca, NY
The Realtor with personal investment background

Thank you!

I thought i knew all this, but glanced anyway... and was surprised to learn about the buyers labor union. New info for me.

 

Jul 27, 2013 07:46 AM
Jon Sigler
Coldwell Banker Realty - South Windsor, CT
Sigler Sold Another! 860-306-8029

Brian, the employer and labor union are technically allowed by FHA, but I decided to included them on the unacceptable sources since I couldn't locate any lender allowing them.  

Yale University here in CT does have a program to help their employees buy a home.  It is an allowable source, but it is not a gift.  It is a 2nd mortgage that is forgiven over a period of time.

Jul 27, 2013 10:21 AM
Joan Whitebook
BHG The Masiello Group - Nashua, NH
Consumer Focused Real Estate Services

I have buyers ask about "wedding money" .. it comes from various sources.. including family and friends.. and sometimes is several thousand dollars.  Will this fly? 

Jul 27, 2013 12:21 PM
Rob Lang
At Home Kansas - Shawnee, KS
Local Expert in NE Central Kansas Real Estate Home

Great info all in one place and easily found through AR search!  Thank you!

Jul 27, 2013 06:12 PM
Gita Bantwal
RE/MAX Centre Realtors - Warwick, PA
REALTOR,ABR,CRS,SRES,GRI - Bucks County & Philadel

Thank you for the information. I will bookmark this post.

Jul 27, 2013 10:45 PM
Jon Sigler
Coldwell Banker Realty - South Windsor, CT
Sigler Sold Another! 860-306-8029

Joan, yes, wedding gifts are generally acceptable.  Documenting them is a little different though.

Rob and Gita, thanks for stopping by, hope the information is helpful for you!

Jul 28, 2013 11:14 AM
Nina Hollander, Broker
Coldwell Banker Realty - Charlotte, NC
Your Greater Charlotte Realtor

Thanks for this recap... so many FHA buyers are first-time buyers and don't have a clue as to what they can or can't do legally.

Jul 29, 2013 12:28 AM
Jon Sigler
Coldwell Banker Realty - South Windsor, CT
Sigler Sold Another! 860-306-8029

Nina, glad you found the information useful!

Jul 29, 2013 11:30 AM