A couple of days ago I posted a blog on "Seasoning Money", and ended the blog stating that I would post another blog on "Gift Money" Acceptable Donors & Required Documentation. After thinking about that a little more, I will actually be posting at least a couple of blogs on this topic, because the documentation does change between Conventional and FHA Loan, and one blog would simply would be to long. I will start with Conventional Loans, and what Fannie Mae considers to be an acceptable donor, and the documentation that Fannie Mae requires.
Fannie Mae allows for an acceptable donor to contribute towards the Borrowers downpayment and closing costs. This should not be confused with Seller Paid Costs. Seller Paid Costs are not "Gifts" and can ONLY be applied towards closing costs.
Acceptable Donor:
- A Relative:
- Spouse
- Child or other dependent
- Related to the borrower by:
- Blood
- Marriage
- Adoption
- Legal guardianship
- Fiance
- Fiancee
- Domestic Partner
NOTE: If the gift is received from a relative, fiance, fiancee, or domestic partner who has lived with the borrower for the last 12 months, the gift will be considered the Borrowers own funds, as long as the other individual will also be using the purchased property as their principal residence.
Not An Acceptable Donor:
- Affiliated with the:
- Builder
- Developer
- Real Estate Agent (even if the Real Estate Agent is a relative of the Borrower)
- Any other interested party to the transaction.
Amount of Gift:
- Loan To Value (LTV) of 80% or Less - No minimum downpayment or closing cost are required from the Borrower, all of the funds can be gifted, for all owner occupied residential properties.
- Loan To Value (LTV) of more than 80%:
- One-Unit Principle Residence - All funds can be gifted
- Two-To-Four Unit Principle Residence - 5% of the funds MUST come from the Borrower, and all other funds can be gifted
Documentation Required:
- Gift Letter signed by the Borrower and the Donor stating the following:
- Dollar amount of the gift
- Date the funds are transferred
- Must state that no repayment is expected
- Relationship to Borrower
- Required Documents to verify gift:
- Copy of donor's check & Borrower's deposit slip
- Copy of donor's withdrawal slip & Borrower's deposit slip
- Copy of the donor's check to a Closing Agent
- A settlement statement showing receipt of the donor's check
NOTE: Most Lenders will not accept a settlement statement showing the receipt of the donor's check, because they will want to see the funds in the Borrower's account before they will give a clear to close.
NOTE: 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.
The next blog on this topic I will cover FHA's requirements which slightly different in both documentation and allowable amount of gifts.
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Info about the author:
George Souto 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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