Gifts from relatives are normally acceptable source of funds, with restrictions. If the applicant is using gift funds, the applicant is still required to have sufficient personal funds to cover a minimum portion of the down payment:
- 97% LTV loan. If the applicant will be providing a total down payment of only 3% of price, that entire 3% must come from the applicant's personal funds. Gift funds may be used for closing costs and reserves, but NOT for this minimum down payment.
- 95% LTV loan. When the total down payment is 5%, the first 3% must come from the applicant's personal funds. The remaining 2%—as well as other closing costs and reserves—may be covered by gift funds.
- 90%+ LTV loan. If the applicant will be providing at least 10% of down payment, the first 6% must come from the borrower's personal funds. The remaining 4% and more—as well as other closing costs and reserves—may be covered by gift funds.
When gift funds are being used, the loan processor will require additional items to verify that the funds are acceptable:
- Gift letter. The gift letter must come from a qualified donor (relative) and must clearly state (1) the relationship between the borrower and donor and (2) that no repayment is expected or implied. Gifts or equity credits from the builder or seller are not acceptable gift funds.
- Donor source documentation. The donor must demonstrate that they have the funds to give as a gift. Copies of the donor's bank or asset statements for the accounts from which the gift funds will be drawn must be provided.
- Copy of gift check. The applicant must make a copy of the gift check provided by the donor.
- Verification of deposit. The applicant must verify that he or she has deposited the gift funds. A deposit slip indicating the date, account and amount should be sufficient.
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