Typically an FHA loan is one of the easiest types of mortgage loans to qualify for because it requires a minimal 3.5 percent down payment and you can have less-than-perfect credit.
However, many people are not aware that FHA will allow a down payment through a gift. The gift can come from a variety of sources such as:
- A relative
- Your employer or labor union
- A fiancé or fiancée
- A close friend with a “clearly defined and documented interest in the borrower”
- A non-profit or charitable organization
You may also obtain a down payment from a public entity or government agency that provides homeownership assistance to first-time and low or moderate income buyers.
You may not get the down payment from the seller, a real estate agent or broker, a home builder, or an associated entity. These are considered “interested parties” that could profit from the sale of the home.
If any interested party is the source of the gift, the money is considered an inducement to purchase and gets subtracted from the sales price when calculating the down payment.
It’s also important to note that the gift of the down payment cannot be based on an agreement or promise to pay back at any time in the future.
If you determine, this is where the source of your down payment will be derived from you will need to obtain a “gift letter.” The letter should clearly state that no repayment is expected and should include the gifter’s name, address, phone numbers, relationship, and the account from which the gift funds will be transferred.
Be sure also to inform the gift donor that your lender will require a bank statement from them showing the funds coming out of their bank account. The lender will also want to see a certified statement signed by the bank showing the before and after the balance of the deposit into your account. This should be the exact amount of the gift. Do not include additional checks or cash with this deposit. Make it easy for the underwriter to verify the amount of your deposit and that it matches the gift.
The process of documenting a gift is tedious but straightforward. The small additional time investment is well worth getting into a home without requiring your own funds for the down payment.