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Mortgage Gift Funds: What You Need To Know

by Aaron Bacus and Kelly Capozzi, First Coast Mortgage Funding


What You Need To Know

Gift funds have been a hot topic recently for those looking to buy a home. So what exactly is a gift fund and can a buyer accept funds from anyone? Let’s dive into the nitty gritty! Gift funds are funds given to someone buying a home by an acceptable donor to be used as a down payment, towards closing costs, or other feesThey can only be used on a primary residence or second home and are not allowed to be used for an investment property. 

An acceptable donor can be a relative such as a spouse, child, dependent or other relative that is related by blood, marriage or adoption.  A non-relative can be considered as an acceptable donor if they share a “familial relationship” with the borrower such as a domestic partner, fiancé, former relative, or godparent.  It is a requirement that the donor not have any affiliation with the builder, developer, real estate agent or any other interested party in the home building/buying transaction.

There are a few documents that must be given to the lender for them to determine if a buyer is eligible to use gift funds.  The first is a gift letter that specifies the dollar amount of the gift and the dates of transfer.  The donor must also state that no repayment of the funds is expected, give their contact information, and relationship to the buyer. 

In instances where the gift funds are being pooled with the borrowers funds to make the required minimum cash down payment, documents are required that demonstrate a history of the borrower and donor sharing residency.  This could a copy of driver’s license, bills, or bank statements.  The donor must also certify that have lived with the borrower for at least the last 12 months and will continue to do so in the new residence. 

The lender must also verify that the donor has sufficient funds to cover the gift by confirming their accounts or they will need a copy of the donors check and borrower deposit slip or copy of the donor’s withdrawal slip and borrowers deposit slip.  Evidence of an electronic transfer, a copy of the donor’s check to the closing agent, or a settlement statement showing receipt of the donor’s check are also acceptable forms of documentation. 

If a buyer doesn’t have the money for a down payment, home ownership doesn’t have to be out of the question! Gift funds can be a great option and sometimes don’t even require monthly mortgage insurance. Contact your local mortgage lender to see if gift funds are the right option for you. 

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About the Author

Aaron Bacus has been has been in the mortgage business and originating loans for thousands of clients since 1997 and is the Vice President of First Coast Mortgage Funding in Jacksonville, Florida.

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