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by: ConnieSanders
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FHA mortgage loans have many options for the homebuyer. One of these oprions is the down payment assistance program that makes this loan very affordable for buyers with no cash. Even with out the gift or grant programs a buyer can usually get an FHA loan with as little as 3% down. This means money applied to closing costs or down payment. It is a little more confusing to structure this product than conventional loans but the low interest rate makes it worth the effort.

A gift for the down payment and closing costs may come from sources such as: a family member, close friend, an employer or labor union, a charity organization, or a governmental agency or public entity that has an FHA-accepted homeownership assistance program.

100% of the funds for down payment and all closing expenses may come from an acceptable gift or grant program. These funds must be documented to show that no repayment is expected and the gift donor will not place a lien on the subject property. Gifts may not be used to meet the borrower's required 3 months PITI reserves requirement for 3 and 4 unit purchases.

A Gifts cannot be used to falsly increase a borrower's assets (bank balance or savings) in order to show enough reserves remaining after closing that would change the automated results from a Refer or Ineligible to an Approve Eligible or Accept status. The underwriter has to look at the results to determine if any gift amount is actually being considered as part of the reserves. If this is the case, the gift amount must be subtracted from the reserves shown on the findings and the loan must be run through the system again to provide an accurate depiction of the assets and then proceed to obtain a clear approval.

A gift letter must specifically state there is no repayment and clarify that the gift donor is not tied to the loan transaction in any way.

The transfer of funds from the gift donor to the borrower is required. A lender must document the transfer of funds from the donor's account to the borrower's bank account by obtaining a copy of the canceled check or other satisfactory withdrawal document that shows the gift is leaving the donor's account and is being deposited into the borrower's account. If the gift amount is being received at the closing, a certified check from the donor and a copy of the withdrawal receipt from the donor's bank account is required. The closing agent must make copies of these documents to forward to the lender with the closing package.

This is a little tricky. If the donor borrowed funds for the gift he must provide documentation that shows, with out a doubt, that the funds were not borrowed from a party to the transaction. Cash-on-hand from the donor is absolutely not acceptable.

Other benefits with an FHA mortgage include: low interest rates, forgiving about minor past credit problems (even while in a chapter 13), and a no qualifying stream line refinance. As you can see everyone should consider an FHA loan.

About the Author

Connie Sanders is a strong advocate for educating the consumer about mortgage underwriting guidelines before they apply for a loan. Connie put together a mortgage guidelines web site at http://www.mortgageunderwriters.com and can be contacted there with any questions you may have. This and other unique content 'fha down payment assistance' articles are available with free reprint rights.

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