FHA Mortgage Guidelines:  For the Professional

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FHA Gift Programs

A Gift for the down payment and closing cost may come from sources such as: family member, close friend, borrower’s employer or labor union. However, a charitable institution, or a governmental agency or public entity that has a FHA accepted down payment assistance program will not be allowed after October 1st, 2008.  Click here for Housing Recovery Act

Latest news says our politicians are trying to pass HR 6694 that will re-establish the down payment assistance program.  Go Figure!  Actually, they have inserted some control factors.  check it out at: HR6694

All funds for down payment and closing expenses may come from an acceptable gift or grant program. These funds must be completely documented to show that no repayment is expected and the donor will not place a lien on the subject property.  Gifts may not be used to meet the borrower’s  3 months PITI reserves requirement for 3 and 4 unit purchases.

Gifts must not be used to increase a borrower’s assets to show reserves after closing that would alter the DU or LP findings from a  Refer or Ineligible status to an  Approve Eligible or Accept status. The underwriter must review the  findings to determine whether or not any gift amount is considered in the reserves reviewed by the system. The gift amount must be deducted from the reserves and the loan must be run through the system again to provide the real picture of the borrower’s assets and obtain a clear for close approval.

An original gift letter is required. The letter must state there is no repayment required and state the donor is not tied to the loan transaction.

The lender must completely document the transfer of gift funds from the donor’s account to the borrower’s account by obtaining a copy of the canceled check or other satisfactory withdrawal document that shows the gift leaving the donor’s account and then being deposited into the borrower’s account.  If the gift  is being received at the closing, a certified check from the donor and a copy of the withdrawal receipt from the donor’s bank account is required. The closing agent must make copies of these documents and forward to the lender with the closing package.

If the donor borrowed funds for the gift, the donor must provide acceptable documentation that the funds were not borrowed from a party in the transaction or the mortgage lender. Cash on hand from the donor is not acceptable.

 

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