Wednesday, June 26, 2013

Gift Funds

Gift Funds
- Acceptable Gift Funds
• An outright gift of the cash investment is acceptable if the donor is:
- A relative of the borrower
- The borrower's employer or labor union
- A charitable organization (see below)
- A close friend with a clearly defined interest in the borrower
• A gift of equity is acceptable if the donor is:
- child, parent or grandparent
- spouse
- legally adopted son or daughter, including a child who is placed with the borrower by an authorized agency for legal adoption
- foster child
- brother, sister, stepbrother, stepsister
- uncle, aunt
Note: in-laws are NOT acceptable donors for gifts of equity
• A gift from any other source is considered an inducement to purchase and requires a reduction to the sales price.
- Donor's Source of Funds

- Gift Letter Requirements
• The gift letter must:
- Specify the dollar amount given
- Be signed by the donor and the borrower
- State that no repayment is required
- Show the donor's name, address, telephone number, and relationship to the

- Gift Transfer Documentation
• Gift Funds in the Homebuyer's Account
- The transfer of the funds from the donor to the homebuyer must be documented by

• The homebuyer's deposit slip AND bank statement showing the deposit.
• Funds Provided at Closing
- If the transfer of the gift funds is by certified check made on the donor's account the
 following must be obtained:
• Bank statement showing the withdrawal from the donor's personal account, and
• Copy of the certified check.
• The donor must provide a withdrawal document.

- If the funds are provided in the form of an electronic wire transfer to the closing agent:
• The donor must provide documentation of the wire transfer.
- If the donor borrowed the gift funds and cannot provide the documentation from his/her bank or other savings account, the
donor must provide evidence that those funds were borrowed from an acceptable source, not from a party to the loan
transaction or the mortgage lender.
As a general rule, FHA is not concerned with how a donor obtains gift funds, provided that the funds are not derived in any manner
from an interested party to the sales transaction.
A copy of the canceled check or withdrawal document showing the withdrawal is from the donor's personal account, and
Additionally, the gift letter must also contain language asserting that the funds given to the homebuyer were not made available to
the donor from any person or entity with an interest in the sale of the property including the seller, real estate agent or broker, builder,
loan officer, or any entity associated with them.
Canceled check for the amount of the gift showing the funds came from the donor's personal account.
Donors may borrow gift funds from an any other acceptable source, provided the mortgage borrowers are not obligors to any note to
secure money borrowed to give the gift.
Detailed procedures for verifying the transfer of gift funds from private individual donors to homebuyers, as well as the required contents of the gift
letter, are outlined below. These procedures are intended to ensure, to the greatest extent possible, that the gift funds were in fact the donor's own
and are not derived from an unacceptable source.
A governmental agency or public entity that has a program to provide homeownership assistance to low- and moderateincome families or first-time homebuyers
If the donor purchased a cashier's check, money order, official check, or any other type of bank check as a means of
transferring the gift funds:
Pinnacle Capital Mortgage FHA Guidelines 6-24-2013 Page 5 of 42- Unacceptable Gift Funds

• Cash-on-hand is not an acceptable source of donor gift funds.
Verification of Deposits (VODs):
- Verification of Deposits (VODs) may be provided in lieu of bank statements, per AUS findings. VODs must reflect the following:
• The VOD form must be computer-generated. The information from the institution may be handwritten.
• Borrower(s) name(s) and address
• Institution Name and address
• Account numbers
• Current account balance
• Minimum 2-month average account balance