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Buying a house can be one of the largest purchases a person makes in a lifetime. There are a lot of costs, including proof that you can make your monthly mortgage payments. Sometimes, a homebuyer is lucky enough to receive assistance from loved ones for their mortgage costs in the form of gift funds.
Gift funds are a personal monetary gift given to a borrower to help cover a down payment, closing costs, or financial reserves. Gift funds must be thoroughly documented and meet certain requirements to ensure a borrower will still be able to afford their monthly mortgage payments and not default on their loan.
A letter of documentation, also called a gift letter, is required for gift funds.
A gift letter must:
In addition, documenting the transfer of gift funds is required for mortgage lenders to verify during processing and underwriting.
Documentation is required to make sure the money isn’t a loan, which can negatively affect your debt-to-income ratio and may affect if you qualify for a loan. A gift letter and paper trail are confirmation for your mortgage lender that you have the funds for your monthly mortgage payments.
Gift funds are only acceptable from certain relations to the borrower. The list of eligible donors also depends on the type of loan you choose.
For example, conventional loan gift funds can only be provided by family members or spouses. In contrast, FHA loan gift funds can be provided by a family member, spouse, close friend, or employer. To learn more about eligible gift fund donors, it’s best to ask your Loan Originator.
If you want to learn more about how Homestead Funding can help you achieve the goal of homeownership, contact us today! One of our Licensed Loan Originators will answer any questions you have and guide you through the full process.
Homestead Funding offers exceptional customer service and a convenient mortgage process. Whatever your financing needs, our goal is to exceed your expectations.