Gifts for both the down payment and the closing expenses may come from acceptable sources such as: family member, close friend, Borrower’s employer or labor union, a charitable institution, or a governmental agency or public entity that has a FHA accepted homeownership assistance program.
100% of the funds for down payment and all 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 gift donor will not place a lien on the subject property. Gifts may not be used to meet the Borrower’s mandatory 3 months PITI reserves requirement for 3 and 4 unit purchases.
Gifts can not be used to increase a borrower’s asset 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 total reserves shown on the findings and the loan must be re-run through the system to provide the true picture of the Borrower’s assets and obtain a clear approval.
An original gift letter is required. The letter must state there is no repayment required and that no gift donor is tied to the loan transaction.
The transfer of funds from the gift donor to the borrower is required. The Lender must document the transfer of gift funds from the donor’s account to the Borrower’s bank account by obtaining a copy of the canceled check or other satisfactory withdrawal document that shows the gift is leaving the donor’s account and is being deposited into the borrower’s account. If the gift amount 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 is to make copies of these documents and forward to the Lender in the closing package.
If the gift donor borrowed funds to provide the gift, the donor must provide acceptable documentation that the funds were not borrowed from a party to the transaction or the mortgage lender. Cash on hand from the donor is not acceptable.
You can find more information at FHA Mortgage Underwriters.