When you are receiving gift funds for help on your down payment and/or closing costs, there are certain steps you need to take and specific requirements for gift funds. There are specific acceptable sources for gift funds (listed below) but would need to be discussed with your lender. This is loan program specific so make sure to bring this to your lender’s attention prior to proceeding. Listed below is a guide to the steps and items needed from you and from the donor.
Acceptable Sources for Gift Funds
Employer or labor union
A close friend with a clearly defined and documented interest in the home buyer
A charitable organization
A governmental agency or public entity that has a program providing home ownership assistance to low and moderate-income families, or first-time home buyers. (Down Payment Assistance Programs such as CHFA, CHAC, HOAP, MMA)
Steps & Items needed from you (home buyer/giftee) and Donor
1. Will need to complete a gift letter (provided by lender), which will need to be fully completed, signed/dated by both borrower and donor. Information that will need to be disclosed on the gift letter includes donor’s name, relationship, address, phone, bank account number, type of account and address of financial institution.
2. If the funds are received prior to your loan application you will need to provide:
a. Copy of the donor’s canceled check OR withdrawal document showing the donor’s account from which the funds were obtained. And likely a copy of the account statement from the donor who gave you the money (to cover 30 days)
b. Copy of the home buyer’s bank statement showing the exact amount of the deposit to the home buyer’s account. (Note: A bank deposit slip is acceptable if it shows an updated balance, the amount of the deposit, and references the home buyer’s account number.
3. If gift funds are given to the home buyer(s) after application, BUT prior to closing, you will need to provide:
a. Copy of the donor’s canceled check OR withdrawal document showing the donor’s account number from which the funds were obtained
b. Copy of the donor’s full 30 days bank statement (ALL PAGES) showing funds were available when they gave them to you.
c. Copy of the home buyer’s bank statement showing the exact amount of the deposit into the home buyer’s bank account
4. If gift funds are to be provided to the home buyer(s) as a cashier’s check at closing, you will need to provide:
a. Clear evidence that the withdrawal of funds came from the donor’s personal account. Provide copy of donor’s full 30 day bank statement showing funds are available
b. Cashier’s check made payable to the home buyer with donor as remitter forexact amount of gift shown on gift letter and from Institution designated on gift letterand a copy of the donor’s actual withdrawal slip (make sure this shows the donors name, and account).
If funds will be wired to closing, have the donor provide documentation of the wire transfer from the institution designated on gift letter.
Cash on hand is not an acceptable source of donor’s gift funds, meaning never get cash from a gift donor, underwriters will not accept it as a gift.
The important thing to remember is that the lender must document the transfer of the gift funds from the donor to the home buyer!
Why? Because there needs to be proof that the home buyer is not receiving funds from either another loan OR that the involved parties (Realtor, Lender) are not giving funds to home buyer!
Many times those whom are giving get very frustrated and feel very violated that they are needing to provide this documentation. All to often the question why this is necessary. The more you are able to inform and prepare them of what is expected, in advance, then the more willing they are to provide the necessary documentation. It will also allow time for them to situate money if they need to do so.
If you would like to find out more or have any questions please contact us.