First-time Buyers and FHA Gift Money

First-time buyers in Los Angeles County will notice a key difference between conventional loans and FHA loans. FHA loan guidelines allow the home buyer to receive 100% of the down payment and closing costs as gift regardless of your income. Conventional loans do not allow gifted funds to close. They must be 100% verifiable borrower funds. Most conventional loans in Claremont, Upland, Pomona, and Glendora all require 10% down and have newer, tighter qualifying standards as well. FHA loans require 3.5% down and ALL of that 3.5% can be gifted funds from a relative, employer, church or other non-profit organization or documentable long-term family friend or partner. Those sources will also have to provide proof of the ability to give…in order to eliminate cause to suspect that any parties to the transaction have supplied the money, which is not allowed. Most FHA home buyers who use gift funds do get them from a family member.

Things to remember:

Your lender will send you a gift letter to be completed, signed and dated by the individual providing the gift for the FHA loan down payment.
You will need to send a copy of the bank statement where the gift donor will be getting the funds from.
You will need a receipt of the withdrawal of the funds from the gifter’s account and a receipt of the deposit if you put the money into your account prior to closing escrow.
The best way to handle the gift funds is to have them wired directly to the escrow company handling your purchase at closing. This way you only need a receipt of the wire to prove the source.
FHA loans also allow you to receive a gift for all of your purchase closing costs as well. So you can get a gift for closing costs + ALL of the down payment.

It’s sometimes humbling to approach relatives about gifting money to buy a home. However, while they declare you do not have to pay them back by virtue of the gift letter form, I certainly paid my mom back pronto back in 1990 when she helped me. It seemed like the right thing to do.

General FHA highlights:

To get an FHA loan your credit score does not have to be perfect
FHA loan interest rates are rarely higher than conventional loan rates
The maximum FHA loan is $729,750 in Los Angeles County, Orange County and Ventura County and $500,000 in San Bernardino County and Riverside County.
FHA loans are eligible for no-cost Streamline Refinances if market interst rates drop!