FHA Gift Letter Requirements

Money in a gift boxThe 203 (b) and 203 (k) only require a 3.5 percent down payment. In addition to the down payment requirement, the borrower is also responsible for the closing and prepaid costs.

To help cover the closing and prepaid charges, the home seller is allowed (not required) to pay up to 6% of the sales price to the buyer's closing expenses. The home seller is not permitted to contribute to the down payment.

Gift money contributors

Individuals listed below can help the borrower with a down payment, closing costs, and/or prepaid expenses. There must be no expectation or implication that the borrower would reimburse the money to the donor. In other words, there may not be a payback to the donor.

You might be surprised to learn that the donor (the person who gives the money) can obtain a loan to deliver the money to the borrower. It is permissible for multiple donors to make monetary contributions.

For example, if the mother and father are unable to provide the complete financial requirement, another qualified donor, such as a sibling or sister, might join their donation gift to meet the cash requirement.

Donors who are eligible include:

  • relative of the borrower
  • employer or labor union of the borrower
  • a close acquaintance who has a specific and proven stake in the borrower
  • a charity organization a governmental body or public institution with a program that provides house ownership help to low-income people
    • families with low and moderate incomes, or       
    • homebuyers who are making their first purchase.

Who can not give a gift?

A person or entity with an interest in the sale of the property, such as the seller, real estate agent or broker, builder, or a associated entity, may not be the gift donor.

It's worth noting that the lender is allowed to offer the borrower closing cost assistance as long as the aid does not exceed 6% of the sales price and stays within the (total) 6% limit.

Documentation Required for a Gift Fund

Any donation money must be documented by a gift letter signed by both the donor and the borrower. The donation letter must contain the following information:

  • The financial amount of the gift is specified by the donor's name, address, and phone number.
  • Describe the donor's relationship with the borrower, and declare that no payback is necessary.

The lender is able to provide a blank gift letter.

If the gift funds ... Then the lender must ...
are held in the account of the borrower obtain
a copy of the withdrawal documentation establishing that the funds were withdrawn from the donor's account, and
the deposit slip and bank statement of the borrower
are to be made at the settlement, and

are made by way of a certified check drawn on the donor's bank account.
obtain a

bank statement demonstrating the transaction from the account of the donor, and
A copy of the certified check is required.
are to be made at settlement, and

are drawn on a cashier's check, a money order, an official check, or another kind of bank check
Require that the donor provide withdrawal documentation or a cancelled check for the gift amount, showing that the funds were taken from the donor's own account.
are to be made at the settlement, and

are made electronically through wire transfer to the closing agency.
seek documentation of the wire transfer from the donor.
which the donor has borrowed, and

There is no evidence of a bank or other kind
To ensure that the money were borrowed from a genuine source rather than a party to the transaction, such as the lender, request that the donor produce written proof of this fact.

Important note: Cash on hand is not a valid source of funds for donor contributions.

Commissions on Real Estate Transactions from the Subject Property's Sale

As long as the borrower is a properly licensed real estate agent who will get a real estate commission upon the sale of the property being bought, he or she may utilize that amount for the cash investment with no modification to the maximum mortgage amount needed.

SOURCE: HUD 4155.1 Chapter 5, Section B