The Paper Trail:
Rules for Verifying Gift Funds on FHA Loans
One of the issues that always come up is how much money your clients plan to use for their down payment. However, what is rarely discussed is, â€œwhere is the money coming from for the down payment and closing costs?â€
When working with FHA buyers and getting them pre-approved, if they say they are getting all (or part) of the money from a gift, FHA requires a â€œpaper trail.â€Â I want to share with you exactly what is needed because this alone could hold up closingâ€”or kill a deal.Â
The gift letter itself must contain the following verbiage:
Â· Name, address and telephone number of the donor
Â· The dollar amount of the gift
Â· The relationship of the donor to the borrower
Â· That no repayment is required
There are four ways to verify the transfer of the funds (only one is required ):
1.Â Â Â If funds are already in a borrowerâ€™s accountâ€¦
a. Obtain a copy of the withdrawal slip from donorâ€™s account
b.Â Â Â Obtain a copy of deposit slip and bank statement showing the deposit into borrowerâ€™s account.
2.Â Â Â If funds are provided at the closing tableâ€¦
a. Obtain a copy of withdrawal slip from the donorâ€™s account
OR, obtain a bank statement showing the withdrawal from donorâ€™s account
b.Â Â Â Must be paid in the form of a certified check
3.Â Â Â If funds are going to be â€œwiredâ€ at closingâ€¦
a. Donor to provide documentation of the wire transfer
4.Â Â Â If donor is borrowing funds...
a. Donor to document the loan
b.Â Â Â Funds were borrowed from an acceptable sourceâ€”bank, credit union, home equity line of credit, etc.
c. Cash on hand is NOT an acceptable source of gift funds
Please call me if you find yourself working with FHA borrowers who mention they are getting money from relatives to help them buy a home.Â Weâ€™ll need to let them know what â€œpaper trailâ€ they will need to follow.Â