Gift Funds Explained: Donors, Sourcing & Regulations

In today’s economy, coming up with enough money for a down payment and closing costs can be challenging, especially for younger and first-time home buyers. It’s not uncommon for home buyers to borrow money from family or close friends to help with the costs of purchasing a home. 

In this video, Christian Alvarez, a Mortgage Advisor at Samuel Scott Financial Group, explains the fundamentals of gift funds and the regulations that must be met during this process.

There are two types of home loans that will allow Gift Funds:  conventional financing and FHA loans.  Conventional financing requires the borrower to come up with at least 3% of costs from their own personal funds, with the remaining funds gifted to cover the down payment or closing costs.  FHA financing, which is backed by The Federal Housing Administration is typically is more relaxed.  A borrower with FHA financing can have 100% of the funds gifted.

Not everyone is considered and acceptable donor.  A gift can be provided by: a relative, defined as the borrower’s spouse, child, or other dependent, or by any other individual who is related to the borrower by blood, marriage, adoption, or legal guardianship; or a fiancé, fiancée, or domestic partner. The donor may not be, or have any affiliation with, the builder, the developer, the real estate agent, or any other interested party to the transaction.  Regardless of the donor relationship, Gift Funds are not allowed on an investment property.

For a Gift Fund to be accepted, your Mortgage Advisor needs to provide a paper trail identifying the source of the funds and the nature of the borrower’s relationship to the donor.  First, all gifts must be evidenced by a letter signed by the donor, called a gift letter. The gift letter must:

• specify the dollar amount of the gift;
• specify the date the funds were transferred;
• include the donor’s statement that no repayment is expected; and
• indicate the donor’s name, address, telephone number, and relationship to the borrower.

 

When a gift from a relative or domestic partner is being pooled with the borrower’s funds to make up the required minimum cash down payment, the following items must also be included:

• A certification from the donor stating that he or she has lived with the borrower for the past 12 months and will continue to do so in the new residence.
• Documents that demonstrate a history of borrower and donor shared residency. The donor’s address must be the same as the borrower’s address. Examples include but are not limited to a copy of a driver’s license, a bill, or a bank statement.

 

The lender also must verify that sufficient funds to cover the gift are either in the donor’s account or have been transferred to the borrower’s account. Acceptable documentation includes the following:

• a copy of the donor’s check and the borrower’s deposit slip,
• a copy of the donor’s withdrawal slip and the borrower’s deposit slip,
• a copy of the donor’s check to the closing agent, or
• a settlement statement showing receipt of the donor’s check.

 

It’s also important to note that the  gift funds must be seasoned, meaning that they have been in the “receiving” account for 60 days or longer.  Be sure to your Mortgage Advisor know if you plan on using Gift Funds at the beginning of the financing process so they can ensure the paper trail is set in place and enough time has past to season the funds.

Considering using a Gift Fund to help with your home purchase?  Talk to one the expert Mortgage Advisors at Samuel Scott Financial Group and learn more about your options.

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Christian Alvarez is a bilingual Mortgage Advisor at Samuel Scott Financial Group with more than 11 years of experience in the mortgage industry. Christian, who was born and raised in San Diego, began his career as a Loan Officer at Primary Capital in Laguna Hills in 2001.  He went on to work for Back Bay Funding, First Capital Corp., and later co-founded Finance North America.  At Finance North America, Christian was one of the first to create and offer US based loans for purchasing real estate in Mexico.

Christian is recognized for his persistence, a particularly valuable quality in a challenging housing market, and his reliability in serving clients.  He considers it a personal goal to help clients in tough situations, especially if they have been denied a loan before.  With his strong commitment to helping people achieve home ownership, Christian is an excellent Mortgage Advisor and a Southern California market expert.

Samuel Scott Financial Group is a boutique mortgage company recognized for superior customer satisfaction and the way they tailor the residential loan process to every individual client.  Todd “Samuel” Pianin and Brian “Scott” Reynolds founded the company on the principles of long lasting relationships, and a sincere honest approach to every single individual we serve.  Consistent and reliable, Samuel Scott Financial Group has been selected as The

Best Mortgage Company in San Diego for the 5^th straight year by readers of local publications.

President:  Todd Pianin

Vice President of Sales:  Russ Schreier

Mortgage Advisors:  Christian Alvarez,  Dean Brown, Mark Buchanan, Mitch Palmer, Brian Reynolds, Debra Roberts, Mark Robertson, Alex Scoma, Brian Shaw, Keith Sims, David Talbott.

 

Samuel Scott Financial Group is licensed by the CA Dept. of Real Estate license #01458652 and NMLS identifier 235584. ©2011 Samuel Scott Financial Group. All rights reserved.