Down Payment Gifts

When purchasing or refinancing a home through FHA lenders, you are required to pay the down payment on the loan which is usually 3.5%. For a home that is $200,000 the required amount will be around $7,000. While the down payment required through FHA lenders is significantly lower than the requirement through a conventional source, the funding can still be difficult for some families to come by. Because of this the FHA has opened it up so that funding can come from a variety of sources– including gift giving. You do not have to provide the funding yourself but there are a few rules you need to stick with if you intend to have the down payment gifted to you.

Approved Sources for Funding

When making the down payment for a home or refinance you will have to verify, for the lender, where you got the money. The lender then makes sure it meets their criteria for an approved source. These sources– when a homeowner is providing the funding without help– are all considered acceptable:

  • Down Payment GiftCash from a checking account
  • Cash from a savings account
  • Cash that you put aside and saved in your home
  • Savings bonds
  • IRA
  • 401k
  • Money that you acquired by selling personal property
  • Personal investments
  • Gifted
  • And others…

Unacceptable sources include:

  • Credit Cards
  • Payday Loans
  • Loans that don’t have collateral backing them

The approved sources list is not comprehensive and there are other sources that can be approved through your lender. Therefore, if you have another source that isn’t on this list you’ll want to discuss with your lender whether it is an option that will work for you.

Approved Gift Funding Sources

Money that has been secured for your down payment through a gift is going to be put under the microscope so to speak, while the lender verifies that you received it from an acceptable source, and that the money itself was given within the requirements for the gift. For a full list of the requirements you will want to discuss the gift with your lender, but the biggest requirement is that the gift be considered an actual gift; the person offering it must not expect that the money is repaid in any way. Acceptable sources for the down payment gift include:

  • A government program designed to help specific demographics of homeowners
  • A charity
  • The homeowners labor union
  • An employer
  • Relatives
  • Family members
  • A close friend – documented to have a specific interest in the homeowner

And there are some sources that are unacceptable and will be declined if you try. These sources are basically any person with a vested interest in the sale of the property. So for example:

  • A business entity that is associated with the sale
  • The broker
  • The seller
  • The home builder
  • The real estate agent

The requirements regarding the down payment funding sources, whether they are gifted or not, are in place to make sure the homeowners are not taking on additional debt with the purchase of the home, and to make sure there is integrity and equality during the home buying process for the lenders, the FHA, and the homeowners.

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