Profile picture for KatieMilillo

What is the procedure when receiving a gift for down payment or closing?

We are going with a conventional loan. We will be putting down 5%. My husband's parents had wanted to pay for the down-payment as a gift. When we spoke to the lender we got pre-approved with, they told us that unless they're willing to gift us 20%, the 5% will need to be our own money. 

We contacted another bank to see if their policy was the same and they said with putting 5% down that 3% needed to be our own, but 2% could be gifted. 

We put in our final offer on the house tonight and the real estate agent told us that we would also have to pay the remainder of the closing costs(3% Seller's Assist) and that would need to be with our own money. 

Is all of this true?

My husband is going to be the only one on the loan because I only work part-time seasonally, and I don't have any credit. If I deposit money that I make from working part-time, can we use that towards the down payment and closing costs? Or do we need to have a paper trail? I get paid cash so there wouldn't be any pay-stubs. 

  • December 10 2013 - Altoona
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Answers (6)

Profile picture for user1423854
The information is mostly correct - You would need to show that you have at least 3% of your own funds according to Fannie Mae Guidelines and 5% according to Freddie Mac. Bottome line for conventional loans you will need to show 3% of non gifted funds in your account. 
You could look at FHA financing in which case you can receive a gift for the full down payment  
  • December 11 2013
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If your deposits are large deposits, they will need to be sourced. The % that comes from your own money will depend on the mortgage insurance company. Fannie Mae allows for the full 5% to be in the form of a "gift". If you are being told otherwise, that particular lender may have certain overlays that require 5% to be from your own funds. You may want to look in another direction if that's the case.
  • December 11 2013
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If you have 5% for the down payment, his parent's can provide gift funds for the closing cost. There is a process to verify the receipt of gift funds which your lender can provide.  It is important that along with signed Gift Letter that the gift money source be verifed and "paper trail" of funds into your account. Unfortunately, cash put into an account without verifying source will not count towards funds needed for down payment or closing cost. Hopefully you already have the 5% in an account for past 60 days.

  • December 10 2013
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"Is all of this true?"

Yes.

What does your husband do for a living?

If he's a fireman, policeman, or health care worker, you may have a way around the issue.

Otherwise, your gift givers are going to have to give you the money, and you're going to have to let it "season" for 60 days, in your savings account. Some may call this method a bit sketchy. I don't know if it is, or isn't. I can't wait to see what other experts think.

I'm afraid y'all have gotten ahead of yourselves, a bit.
  • December 10 2013
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Profile picture for GMerino

Gift funds are allowed but when you need mortgage insurance certain guidelines need to be followed:  If the lender is going off of MGIC guidelines the borrower must be at or below 41% debt to income ratio, minimum credit score needs to be at 740 or greater and a few others but the most important one is the credit scores and debt to income ratio. 

  • December 10 2013
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Profile picture for GMerino
Not sure what is going on with your situation such as credit score but I know that for a conventional loan a borrower of a mortgage loan secured by a primary home or a second home may use funds received as a personal gift from an acceptable donor.  Gift funds may fund all or part of the down payment, closing costs or financial reserves subject to the minimum borrower contribution requirements. 

If your doing a Freddie Mac loan than 5% is most likely required and if your loan requires mortgage insurance (mi) must follow mortgage insurance company requirements for own funds. 

You would need a paper trail for any large deposits. 
  • December 10 2013
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