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FHA Loan Rules for Down Payment Gift Funds March 22, 2017 – Borrowers wishing to purchase a home with an FHA loan may need some help with the down payment . There are rules that permit a borrower to receive such outside help, but the source and purpose of these funds are carefully regulated under FHA mortgage loan rules.
There are two types of gifts that your relatives or contacts can provide: a cash down payment gift or, in the event a family member is selling the property to you, a gift of equity. In each case, the funds may be used for the down payment, closing costs and prepaid interest points.
On the other hand, If you're going with a FHA mortgage you have more options. You can receive gift money to use towards a down payment.
TD Bank’s "Right Step" mortgage, for example, allows borrowers to secure a loan with a 5% down payment. It also allows them to receive as much as 2% of the sale price as a gift from a relative.
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If you’re getting a primary residence, you can use gift funds for your down payment. These guidelines apply: If it’s a single-family home, you can use gift funds without having to contribute any of your own money to your down payment.
Conventional loans backed by Fannie Mae and Freddie Mac allow the borrower to apply financial gifts to the down payment, fees, and closing costs. The borrower usually does not need their own funds when receiving a gift if the gift covers the entire down payment and other loan costs.
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Simply stated, a down payment gift is a gift of liquid monetary value to be used for the specific purpose of putting money down for the purchase of a residential property. As the name implies, it’s a gift. It’s not a loan that must be repaid; the lender will make sure to document it as such.
On a conventional mortgage, most lenders will require that you put at least 5 percent down using your own money, separate from a gift, unless the gift is large enough to cover at least 20 percent of the purchase price. An exception is VA and FHA mortgages, which allow you to use a gift for the entire down payment.