Good Morning!
If you wanted a Conventional Loan, and you were thinking of trying to use a gift for down payment or to help with closing costs – here are some guidelines you need to be aware of…
The gift can only be provided by…
A relative, defined as the borrower’s spouse, child, or other dependent, or by any other individual who is related to the borrower by blood, marriage, adoption, or legal guardianship; or a fiancé, fiancée, or domestic partner.
Amount of gift…
If loan to value ratio is 80% or less (putting down at least 20%) then entire down payment can be a gift! This would be on owner occupied 1 to 4 family homes.
If loan to value ratio is 80% or higher then entire down payment can be a gift! …This would apply to a one unit principal residence.
If buying a 2 to 4 unit home and the LTV is over 80% then 5% of the down payment must come from borrower’s own funds. The remaining funds can come from a gift for additional down or help with closing costs or reserves.
Documentation Requirements for a gift…
Gifts must be evidenced by a letter signed by the donor, called a gift letter. The gift letter must:
· specify the dollar amount of the gift;
· specify the date the funds were transferred;
· include the donor’s statement that no repayment is expected; and
· indicate the donor’s name, address, telephone number, and relationship to the borrower.
Remember the main benefit of using a Conventional Loan over FHA is that there is no upfront mortgage insurance payment!
I hope you have a great day! Thanks for reading!
Brett
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