GIFT DONOR CHANGES to Fannie and Freddie

What happens when you have a realtor that is a family member on a transaction and they want to give a gift to their relative.

This came up recently and is a great tidbit of information when someone is working with a relative.

The difference is between Fannie and Freddie when a gift is coming from an interested party to the transaction. Most notably a realtor for an eligible gift recipient. This does not apply when the seller is the interested party. Gifts or gifts of equity are still eligible under regular seller gift guidelines.

Let’s say mom is the realtor for son in purchasing a home. Mom wants to give a gift to the son to purchase a home in addition to any realtor commission they may be making.

With Fannie Mae mom would not be an eligible gift donor to the transaction and could not provide any form of gift because she is the realtor on the transaction and that includes any part of her commission.

With Freddie, a mom is eligible to give a gift to the son but the gift amount is limited to interested party contributions so if you are getting seller credit already this could limit what they can give.

This used to be allowed but is no longer the case especially on Fannie.

FHA

Using gift funds for an FHA (Federal Housing Administration) loan is allowed, but there are specific guidelines and requirements that must be followed. Here are some key points to keep in mind:

1. Source of Gift Funds: The gift funds must come from an acceptable source. Typically, gifts are allowed from family members, close friends, employers, charitable organizations, or government agencies. The donor should provide a gift letter stating that the funds are a gift and do not need to be repaid.
2. Gift Letter: The gift letter is a crucial document. It should include the donor’s name, address, phone number, relationship to the borrower, the amount of the gift, and a statement confirming that the funds are a gift and not a loan. Both the borrower and the donor must sign the gift letter.
3. Verification of Funds: Lenders will likely require documentation to verify that the funds are available. This may involve bank statements or other evidence of the donor’s ability to provide the gift.
4. No Repayment Required: The gift funds must be a true gift, meaning that there is no expectation of repayment. The borrower should not be required to pay back the gifted amount.
5. Down Payment and Closing Costs: FHA allows gift funds to be used for both the down payment and closing costs associated with the home purchase.
6. Loan Limits: Keep in mind that FHA has loan limits, and the gift funds should be within the allowable limits for the specific loan program.

It’s crucial to work closely with us to ensure that you comply with all FHA requirements regarding gift funds. Failure to follow the guidelines could affect the loan approval process. Additionally, certain underwriters may have specific policies or additional requirements, so it’s essential to communicate openly with us throughout the process.