New FHA Gift Documentation Can Kill Your Loan

One of the latest “unwritten” guidelines to hit the underwriting pipeline involves the documenting of a donor’s assets prior to giving a gift to a borrower.  Up until recently, the standard gift documentation involved a few simple items:

1. Signed Gift letter from all parties (Donor and Recipient)
2. Verification of Deposit, Bank statement or Teller statement that evidenced Donor had funds available to provide gift
3. Evidence of transfer of funds between parties (Withdrawal slips, cashier’s check and deposit slips usually handled this)

In the majority of cases, gathering this documentation was fairly simple and straightforward.  Even if you had a super secretive step dad or other relative providing the gift funds you could very easily obtain a Teller statement verifying that, at a minimum, the donor had enough funds to cover a gift of X amount. The newest twist to this is that now we not only have to prove the donor has the funds, but we also have to source and season those funds just like we have to when documenting the borrower’s assets.

Maybe that won’t affect you and I hope it won’t but I don’t personally know too many people who keep five or six thousand dollars just sitting in their checking accounts for months at a time just waiting for a relative to need a down payment gift.  If you are a homebuyer that will be utilizing a gift from a relative you will need to make sure that your donor has their assets properly documented as it can be quite stressful to try and source funds on a individual who really doesn’t have a large stake in your transaction. If they transferred money from a stock market or retirement account you will also have to provide statements for that account as well as documentation showing where they transferred the money to their checking account. Whew……

I assume that someone somewhere was using assets that couldn’t be documented for the buyer and just had them provide the funds to a relative and then had the relative provide a gift to the buyer. Problem solved. Until now. 

How do you avoid a potential catastrophe with this situation. First, don’t try to lie to your loan officer or withhold information. Omitting is no different from lying. Second, make sure your financial house is in order as early as possible during the transaction as this will ensure you will at least be notified quickly of potential problems. Third, be sure to provide all pages of all your asset statements. If you have 4 bank accounts, provide the necessary documentation on all 4. Don’t assume what the minimum documentation will be for your loan. Provide everything you’ve got and let me sort it out. Remember, I’m the expert! You don’t go to the doctor and tell him what you think he wants to hear, you tell him everything so he can make an accurate diagnosis.

Tags: Asset documentation, FHA, FHA gift documentation, FHA loans, Gift Documentation

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