Gift funds are an excellent option for Consumers who are short of the funds needed to purchase a home. Most loan programs allow for the use of gift funds but every loan program has requirements that must be met in order to use gift funds. This is a general overview of the most common requirements:
A Gift Letter. A letter filled out by the gifting party and signed by both the Consumer and the gifting party stating that the gifted funds are being gifted with no expectation of repayment. The letter will state the account being used for the gift funds and the personal contact information from the gifting party.
Capacity to Give. The gifting party will need to document their capacity to gift the funds. To demonstrate their capacity, the gifting party will need to provide an unredacted copy of the most recent bank statement where the gift funds are on deposit. That bank statement must demonstrate the gifting party’s capacity to gift by meeting the following requirements:
The ending balance must display at least the amount of the gift (If the gift amount is $10,000, the minimum balance must be at least $10,000)
If the beginning balance is less than the gift amount, copies of non-direct deposit instruments (checks, money orders, etc.) must be provided along with a brief letter of explanation detailing the nature of the deposit (A gifting party cannot have an opening balance of $1,000 and a cash deposit of $9,000 to meet the minimum $10,000 required balance).
If the beginning balance is less than the amount of the gift, all deposits must meet the requirements described in the attached document titled “Closing Funds Requirements” (cash is not acceptable, etc.)
Gift Transfer Documentation. If the gifting party wires the gift funds directly to the escrow company, there will be no transfer documentation needed. If the gifting party gifts the funds directly to the Consumer, then the following documentation is required:
A copy of the gifting instrument (copy of check, certified check, etc.)
A copy of the deposit receipt when the gift funds are deposited into your account.
A transaction history report from the account they gifted the funds from showing the funds were withdrawn from their account.
A transaction history report from your account after the gift funds have been deposited showing the funds are available for withdrawal
Gifting Party Must Be a Close Relationship: Gifting parties cannot have a financial interest in the property or the transaction. Gifting parties must be of close relationship to the Consumer. Examples of acceptable gifting parties include; parents, grand-parents, Husbands, Wives, Fiancees, Employers, etc. In some cases, documentation of the relationship may be required.