Gift Funds and the FHA Program
HUD does not approve down payment assistance
programs in the form of gifts administered by charitable
organizations. (HUD defines charitable organization as
"an organization who has 501c(3) status with the IRS.)
Gifts are given voluntarily and without compensation.
Therefore, if any condition is expected or implied it is
not considered a gift. Gifts cannot come from "Cash on
hand" or "Cash saved at home." A donor may borrow
the money that they gifted to the borrower but the
borrower cannot be obligated in any way to the source
providing the funds.
If the gift is received from a person or entity with an
interest in the sale of the property, i.e. seller, real
estate agent or broker, builder, or any one associated
with them, it is considered an inducement to purchase
and sales price must be reduced by that amount. The
reduction in sales price also applies if someone other
than a family member pays any of the borrower's debts.
programs in the form of gifts administered by charitable
organizations. (HUD defines charitable organization as
"an organization who has 501c(3) status with the IRS.)
Gifts are given voluntarily and without compensation.
Therefore, if any condition is expected or implied it is
not considered a gift. Gifts cannot come from "Cash on
hand" or "Cash saved at home." A donor may borrow
the money that they gifted to the borrower but the
borrower cannot be obligated in any way to the source
providing the funds.
If the gift is received from a person or entity with an
interest in the sale of the property, i.e. seller, real
estate agent or broker, builder, or any one associated
with them, it is considered an inducement to purchase
and sales price must be reduced by that amount. The
reduction in sales price also applies if someone other
than a family member pays any of the borrower's debts.
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The lender must document the transfer of the funds from the donor to the borrower.
Acceptable procedures include obtaining a copy of the donor's withdrawal slip or
canceled check, along with the borrower's deposit slip or bank statement showing the
deposit to the borrower's account. In cases, where the donor provides the funds in the
form of a cashier's check, the lender must be sure to provide evidence that the funds
used to purchase the cashier's check came from the donor. A withdrawal slip, specifically
showing the donor's account number from which the funds were obtained, would be
sufficient evidence, along with a copy of the cashier's check.
If the funds are not deposited into the borrower's account prior to closing, the lender
must specify that the above instructions be provided to the closing agent in the escrow
instructions for closing. In addition, the lender must make certain that these procedures
were followed and obtain the related documentation from the closing agent. This
documentation must be included in the insuring file submitted to the HOC.
The file must also contain a gift letter specifying 10 items:
1) The dollar amount
2) Name of the donor
3) The donor's signature
4) Address
5) Telephone number,
6) Relationship to the borrower
7) The borrower must be named
8) The borrower's signature(s)
9) The letter must state that no repayment is required
10) Include language asserting that the funds were not made available to the donor
from any person or entity with an interest in the sale of the property.
When gifts are provided by a nonprofit or municipality through a down payment
assistance program (DAP), the same basic rules regarding documentation of gifts apply.
The lender must obtain evidence from the donor (agency) of the amount of funds being
provided, as well as evidence that no repayment by the borrower is required. Evidence
of the actual transfer of funds can be verified by appropriate reference on the HUD-1 in
conjunction with evidence of wire receipt (or a copy of any transfer instrument) by the
settlement agent. Costs for processing a DAP gift may not be included as part of the
borrower's cash investment.
Acceptable procedures include obtaining a copy of the donor's withdrawal slip or
canceled check, along with the borrower's deposit slip or bank statement showing the
deposit to the borrower's account. In cases, where the donor provides the funds in the
form of a cashier's check, the lender must be sure to provide evidence that the funds
used to purchase the cashier's check came from the donor. A withdrawal slip, specifically
showing the donor's account number from which the funds were obtained, would be
sufficient evidence, along with a copy of the cashier's check.
If the funds are not deposited into the borrower's account prior to closing, the lender
must specify that the above instructions be provided to the closing agent in the escrow
instructions for closing. In addition, the lender must make certain that these procedures
were followed and obtain the related documentation from the closing agent. This
documentation must be included in the insuring file submitted to the HOC.
The file must also contain a gift letter specifying 10 items:
1) The dollar amount
2) Name of the donor
3) The donor's signature
4) Address
5) Telephone number,
6) Relationship to the borrower
7) The borrower must be named
8) The borrower's signature(s)
9) The letter must state that no repayment is required
10) Include language asserting that the funds were not made available to the donor
from any person or entity with an interest in the sale of the property.
When gifts are provided by a nonprofit or municipality through a down payment
assistance program (DAP), the same basic rules regarding documentation of gifts apply.
The lender must obtain evidence from the donor (agency) of the amount of funds being
provided, as well as evidence that no repayment by the borrower is required. Evidence
of the actual transfer of funds can be verified by appropriate reference on the HUD-1 in
conjunction with evidence of wire receipt (or a copy of any transfer instrument) by the
settlement agent. Costs for processing a DAP gift may not be included as part of the
borrower's cash investment.
