DOCUMENTING GIFT FUNDS FOR HOME PURCHASE
Many folks use gift funds to buy a home these days. Sometimes a gift is absolutely necessary due to available assets and sometimes a family member just wants to be generous. ALL the time it is necessary to document those funds if they are included in the bank statements provided for proof of funds when using the conforming loan programs
I often hear the comment the donor doesn't want to document the source of the gift. More often than not the donor is willing to give the money, but doesn't want the hassle of providing the proof of funds. Once they understand the procedure, however, most of the time they understand the need for documentation.
Most underwriters these days have direct underwriting authority for the agencies such as fannie, freddie, hud, etc. With this authority comes strict following of guidelines the agencies have set up for home financing. By following the guidelines they are assured the agencies will back the loans after closing.
Documenting gift funds for a home purchase is necessary because it is what the guidelines require. Typically the recipient of funds will get a check, which will be copied before deposit, deposit the check, provide a gift letter from the donor, the donor provides proof they have the funds to give, and the recipient provides proof the funds are received.
When using gift funds for down payment a borrower should verify what the lender will need specifically for the loan program being used before gifts are deposited. It makes the gift fund process easier if it is done right up front.