B3-4.3-04, Personal Gifts (09/06/2023) (2024)

FAQs

What is the maximum gift amount for a conventional mortgage? ›

Are there limits on gift amounts? Usually, there aren't any limits on the amount of money someone can give you toward your mortgage down payment. However, you may be required to pay a portion of your down payment from your personal funds depending on the property type and the amount you put down.

You can use gift funds to pay off debts to qualify for a mortgage when the gift is from an acceptable source, like a family member. Paying off higher-interest-rate credit card debt is sometimes the best way to use gift funds. Let's say your parents want to give you some money to help you buy a home.

FHA has become aware of some nonprofit entities providing gifts to homebuyers for the purpose of paying off installment loans, credit cards, collections, judgments, and similar debts. The nonprofit receives a contribution for the payment of these debts from the seller of a property.

A gift of equity is when one family member sells a home to another at market price while gifting a portion of that price to the buyer to cover the down payment, closing costs, or both. This gift of equity is documented on the final settlement statement (often called the “Final HUD”).

Small amounts, like a $100 birthday check, likely don't need to be documented. Lenders typically want to know about gift money that exceeds half of a household's total monthly income.

Gifts are generally permitted for the full amount of the down payment on a primary residence. Specifics may vary depending on whether the borrower is applying for a conventional loan, a Federal Housing Administration (FHA) loan or a Veterans Affairs (VA) loan.

If you're using gift money for part – or all – of your down payment, you'll need the donor to write a gift letter to your mortgage company that makes it clear that the money is a gift and not a loan.

Gift Funds

A borrower of a mortgage loan secured by a principal residence or second home may use funds received as a personal gift from an acceptable donor. Gift funds may fund all or part of the down payment, closing costs, or financial reserves subject to the minimum borrower contribution requirements below.

Before a lender allows the gift, you'll also need to furnish a gift letter that states the name, address, and phone number of the donor. The letter should clearly identify your relationship to the donor, the amount of the gift, and the date funds were transferred into your account.

There are a few different guidelines on FHA gift funds set out by the Department of Housing and Urban Development (HUD), which include the following: The funds must be verified with bank statements as leaving the donor's bank account and entering the borrower's bank account.

What is the minimum credit score for a FHA loan? ›

Minimum credit score

FHA loans allow borrowers with a credit score of 580 or above to purchase a house with a down payment as low as 3.5% of the purchase price. Borrowers with credit scores between 500 and 579 need at least 10% down.

A gifted deposit must be a gift. It cannot be a loan and there must be no agreement to pay back the money. In fact, you'll need to state in writing that you won't have to pay this money back in the future.

Sign A Gift of Equity Letter

A gift letter is a document that summarizes all of the information about the gift, including the appraisal price and the sale price. Both the buyer and seller must sign the letter. A second letter will accompany other official documents at the home's closing.

When purchasing a house with $100,000 in cash, the buyer may need to provide documentation to the lender or real estate agent to verify the source of the funds. This is to ensure the money was obtained legally and not through illegal activities.

Lenders will require that sellers write a gift of equity letter. This letter should include the total amount of the gift of equity while explaining that the home's buyers are not required to pay back this gift.

If you use a gift with a conventional loan, the donor can gift 100% of your down payment, and in most cases, you don't have to contribute any of your own funds.

Acceptable Donors

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.

Conventional Loans

With a conventional loan and a down payment of less than 10% of the sales price the sellers can only contribute 3.0% of the sales price. With a down payment of more than 10% of the sales price, sellers can contribute up to 6.0% and with a down payment of more than 25%, the maximum is 9.0%.

A gift of equity involves the sale of a residence at a price below its market value without exchanging money. A gift of equity usually involves family members or others close to each other, such as parents selling their home to a child. Most lenders allow the gift to count toward a down payment on the home.