Gift Funds

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Chapter 2
Mortgage Credit Guidelines
Page 2-11

The lender must document the transfer of the funds from the donor to the borrower. Acceptable procedures include obtaining a copy of the donor’s withdrawal slip or canceled check, along with the borrower’s deposit slip or bank statement showing the deposit to the borrower’s account. In cases, where the donor provides the funds in the form of a cashier’s check, the lender must be sure to provide evidence that the funds used to purchase the cashier’s check came from the donor. A withdrawal slip, specifically showing the donor’s account number from which the funds were obtained, would be sufficient evidence, along with a copy of the cashier’s check.

If the funds are not deposited to the borrower’s account prior to closing, the lender must specify that the above instructions be provided to the closing agent in the escrow instructions for closing. In addition, the lender must make certain that these procedures were followed and obtain the related documentation from the closing agent and include it in the file.

The file must also contain a gift letter specifying the dollar amount, signed by the donor and borrower, stating no repayment is required and showing the donor’s name, address, telephone number, and relationship to the borrower.

When gifts are provided by a nonprofit or municipality through a downpayment assistance program (DAP), the same basic rules regarding documentation of gifts apply. The lender must obtain evidence from the donor (agency) of the amount of funds being provided, as well as evidence that no repayment by the borrower is required. Evidence of the actual transfer of funds can be shown as a transaction on the HUD-1. Costs for processing a DAP may not be included as part of the borrower’s cash investment, but may be included in secondary financing.

Please see: HUD Handbook 4155.1, REV-4, CHG-1, Paragraph 2-10c and Mortgagee Letter 00-28.

Mortgagee Letter 00-28 is an MS-Word file. You can also save it as a .txt file and convert it for use with other word processing software. Please consult your Word Processing software's "help" section for conversion of .txt files to a compatable format.