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Gift funds for down payment

April 18th, 2023 11:25 AM by Salim (Sam) Kader MLO# 130505

Potential home buyers with insufficient funds for down payment can receive gift funds. However, it must meet certain requirements: 

Who can gift? Conventional loans require that the donor must be a relative defined as related by blood, marriage, adoption or legal guardianship. Domestic partners and fiances are also eligible to give funds for a down payment.  FHA loans offer a broader eligibility range that include family members, friends ("with a clearly defined and documented interest in the borrower), labor unions and employers and charitable organizations as well as from down-payment assistance programs for first-time and low-income buyers. Sellers, realtors, home-builders and anyone with vested interest in selling the house are not eligible donors. 

How much of a down payment can be gifted? Conventional and FHA loans allow an entire down payment to be gifted by an eligible donor. FHA loan requires a minimum credit scores of 580 for a low down payment to be gifted.  

Conventional financing requirements are different than FHA and is further differentiated between Fannie Mae and Freddie Mac - see Exhibit below: 

Gift process.  A specific steps must be followed:

  1. A Gift letter which I will provide must be completed by the donor along with a copy of gift check from donor and a copy of donor's bank print out showing bank balances BEFORE and AFTER gift funds cleared the donor's bank account. 
  2. A gift letter must be signed by both the donor and the recipient. 
Is the gift taxed? The IRS currently gives people a lifetime gift exemption of up to $11.4 million over the course of your lifetime. 
Posted by Salim (Sam) Kader MLO# 130505 on April 18th, 2023 11:25 AM



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