Down Payment Gifts for FHA Home Loans

Have you heard about using down payment gifts to buy a home? Discover the details of how they work for your mortgage down payment and what loan programs will allow them.

Using down payment gifts for your mortgage down payment is the beauty of the FHA 203(b) mortgage. It will be like catching money falling from the sky.

The use of these gift funds can be from a variety of sources. I would like to help you understand this so you can take advantage of it and help you buy that first home.

Where can these gift funds come from?

Now I am going to try and make this simple. First, what you need to know is, there is no FREE LUNCH in this world. Using gifts for the down payment to satisfy the FHA underwriter is just a fancy way to create the famous ZERO MONEY DOWN home loan.

In most cases you will be borrowing money for your down payment. Unless of course you are working with a loan officer that can help you get these funds from the seller.

It works out the same, but you can actually ask the seller of the house you are buying to give you these funds. Do not be surprised, this happens all the time! But you need a knowledgeable loan officer to help you do this.

You can use 100% down payment gifts for the FHA home loans. It can come from your relatives, a labor union or a charitable organization. The relative gifting you the funds has to be immediate family only.

Down Payment from Family Members

Many first time home buyers have a family member, usually a parent that can or is willing to help you buy a house. Maybe they are tired of you living with them! (ha ha) At any rate, it is normally not too hard to come up with the down payment gifts to get your house bought. With the down payment being just 3% this is a small amount when compared to the conforming loans that have much larger requirements.

Down Payment from Labor Unions

Although I have never seen it, in some cases if the company you work for has a labor union, they may have a fund for down payment gifts. You will have to check this out for yourself.

Down Payment from Charitable Organizations

Most of these funds come from Charitable Organizations. The majority of transactions that I have seen have been done this way. It works much like a gift from a family member with the exception of one thing. Well, a few things really.

They make the donation equal to your down payment requirement, but they want a charitable gift given back at the closing with a fee attached. Remember that I said there is no FREE LUNCH?

Here is How Charitable Donations for Down Payment Gifts Work

The Charitable Organization is not a party to this transaction. They are a third non-interested party. Their whole function as a non-profit organization is to help people become home owners. At face value this sounds good, you know, like free money. Nope!! Not at all.

You the buyer have to get a document signed by the seller that he will make a charitable contribution to this non-profit organization. The donation would be equal to your down payment gifts plus a fee of around $300.

Here is what happens at the day of closing. The Charitable Organization wires the down payment money to the title company that handles your closing. Then, after you close, the title company wires the money back to them, with their fee, the same day.

FHA home loans allow this to happen because the Charitable Organization is one, non-profit, two, not a party interested in this transaction. You see, the seller and their real estate agent are too close to the deal so they cannot make an outright use of these funds. It would look like they did it just to get the deal closed.

The same goes for you the buyer and your real estate agent. Perhaps now you can see why only a relative, labor union or Charitable Organization can offer these type of funds. None of them really have a vested interest in the transaction.

I call the use of Charitable Organizations funds for down payments a legal way to launder money. It is allowed by FHA so there is nothing wrong with it.

One thing that I forgot to mention. The source of these funds must be proven. Some people try to get fancy on this and fool somebody. Do not bother, it will get discovered where the money came from.

If it is a family member the funds have to be deposited into your account before closing. Also to prove where they came from, the family member may have to offer a copy of their bank statement to prove they had the money to use for your down payment gift funds.

All the other sources are proven by documents from the organizations. These documents are provided by them and are quite simple to fill out.

Do not worry, sellers do not have a problem using these charitable organizations and making the required contribution. Keep in mind they want to sell a house. Chances are they are getting ready to buy another one and need the proceeds of the sale to buy it.

Now, as I mentioned above, if you are working with a loan officer worth his/her salt, they will be able to help you get all this done with the least out of pocket money to you.

This just scratches the surface of how these down payment gifts work. I am hopeful by now you can get an idea that you can buy a house with down payment gifts. You just have to be educated on how they work, what you can do to benefit yourself by using them.

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