Gift money rules

Asked by Justin, San Diego County, CA Thu Jun 16, 2011

Hello, as part of down payment for my loan conventional 10% I am receiving 4% as gift money. My loan officer said no problem as long as the donor gives in writing the necessary stuff and copy of check , my deposit slip that should be fine. I did also mention that this money is coming from a line of credit. Hez my cousin, his current assets are locked in other investments. Any issues on this based on your experiences of loans for conventional financing ? Reason i am posting is that even though loan officer acknowledged just not sure how underwriting see this. She did walk me through guidelines but just being extra cautious.

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9
, ,
Thu Jun 16, 2011
BEST ANSWER
All you need to do is write out your detailed plan in an email to your loan officer, your loan officer forwards it to their underwriter, and the underwriter says "Yup" or "Nope" to it being able to work out or not. In the situation the funds are coming directly from the borrowed funds source, rather than going into your cousin's account first, the underwriter may want to see a copy of the personal line of credit monthly statement to make sure you are not listed as an obligator on it.

What you are proposing to do is perfectly fine according to lending guidelines, where a donor gets their funds is only concerning if they are taking out borrowed funds that you would somehow be responsible for (either by you being obligated on the borrowed funds or having a side-agreement to pay the borrowed funds directly or indirectly) but you'll want to make sure the underwriter is on board from the beginning as some can be uncomfortable.

Fannie Mae's gift guidelines: https://www.efanniemae.com/sf/guides/ssg/sg/pdf/sel092010.pd…

Verifying Donor Availability of Funds and Transfer of Gift Funds
The lender 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.

When the funds are not transferred prior to settlement, the lender must document that the donor gave the closing agent the gift funds in the form of a certified check, a cashier’s check, or other official check.
0 votes
Justin, Home Buyer, San Diego County, CA
Thu Jun 16, 2011
Thanks to all , i did write a letter to my loan officer, she did ackowledge that what i am doing is ok as per lending norms. but she did forward this to underwriter ... lets see...
0 votes
, ,
Thu Jun 16, 2011
For owner occupied & second home 1 unit properties with total down payments of less than 20%, as well as owner occupied 1-4 unit properties with total down payments of 20% or more, Fannie Mae now does not require ANY minimum cash investment by the borrower to receive gift funds, no matter how much the total down payment is.

Less than 20% down, 2-4 unit primary residences & 1-unit second homes, anywhere from 3-5% required investment needs to be made by the borrower before gift funds can be received.

With less than 20% down, often PRIVATE MORTGAGE INSURANCE is required, and pretty much MOST (but not ALL) mortgage insurance providers require at least a minimum 3% investment by the borrower in all situations (for second homes it's typically 10% from the borrowers own funds) - getting gift funds or not.

https://www.efanniemae.com/sf/guides/ssg/annltrs/pdf/2010/se… - page 3 has Fannie Mae's new gifting rule guidelines/required borrower contributions.
0 votes
, ,
Thu Jun 16, 2011
Usually you will need 5% of your own money on conventional financing. The gift money should come from a relative. Your cousin borrowing the the gift money may cause a problem.

Happy funding, Rudi
Web Reference:  http://www.umboc.com
0 votes
Kari Shea, Agent, San Diego, CA
Thu Jun 16, 2011
Hi Justin,

Talk to your lender, they will give you the guidelines specific to their institution.

Best to you,

Mark & Kari Shea
Shea Real Estate
Serving Greater San Diego
0 votes
Justin, Home Buyer, San Diego County, CA
Thu Jun 16, 2011
My cousin is going to provide check directly from his personal line of credit. I did ask him if he can do it from his checking or savings etc but he said its all locked out with his recent home purchase and other investments. What you said is worth while but not quite sure i got it.

I can deposit right away and i have a closing in 25 days. When i checked everyone else except underwriting team it seemed like fine. My cousin can provide statement from his line of credit to show source of funds... all i am concerned if this is sufficient enough?
0 votes
Daniel Lehman, , San Diego County, CA
Thu Jun 16, 2011
Conventional guidelines when it comes to gifts are more strict than something like FHA guidelines, however, with your cousin being a "blood relative" you should be fine in that sense.

What you are going to have to do not only document the transfer of funds, but you are going to have to document the AVAILABILITY of funds... So you will need to show some sort of asset statement like a bank statement with the funds available in your cousins account, then evidence of the transfer FROM that account.

The trick is, that if the bank statement has any large deposits (like say, from a line of credit deposit) you might have to source where that came from. AND, I am not so sure you are completely in the clear when it comes to the line of credit. It really depends on the underwriters discretion. They might skim over it and you might be fine, but I would be VERY cautious about removing loan contingencies until after the gift letter and gifting process was complete.

I doubt the guidelines that your lender walked you through were specific enough to mention "if your cousin borrows money from a line of credit, that is an acceptable gift". The way to do it if you have to do it this way, and if you have the time, is have him pull the money from the line, deposit it into his account at least a month before you have to show the documentation, and submit a bank statement with no large deposits.

Otherwise, I feel like the underwriter might have an issue...
Web Reference:  http://lehmangrp.com
0 votes
Just in case anyone need to fill out an Asset Statement form, I found a blank form in this link http://pdf.ac/6LC8O. This site PDFfiller also has several related forms that you might find useful.
Flag Thu Mar 26, 2015
, ,
Thu Jun 16, 2011
As long as the funds you are getting from your cousin didn't come a loan YOU took out, then HIM taking out a loan or line of credit to give you the gift funds is perfectly fine. Typically you need:

1. Gift letter
2. Document the withdraw out of the donor's account
3. Document the deposit into the borrower's account or a cashier's check/wire transfer from the donor at closing
0 votes
Nick Ruiz, , San Diego, CA
Thu Jun 16, 2011
Justin,

Im sure they would want to see that you don't have to pay back your relative, That it is truly a "gift" and not a loan.

Good luck!

Nick
Web Reference:  http://www.NickRuiz.com
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