A borrower of a mortgage loan secured by a principal residence may use donated gift or grant funds from acceptable entities to fund all or part of the down payment, closing costs, or financial reserves subject to the minimum borrower contribution requirements described below.
Donated gift or grant funds may also be applied towards energy-related improvements if
the program under which the funds are made available allows such a use, and
the minimum borrower contribution requirements are met.
Donated gifts and grants are not allowed on a second home or an investment property.
Acceptable entities include churches, municipalities, nonprofit organizations (excluding credit unions), a regional Federal Home Loan Bank under one of its affordable housing programs, and public agencies.
The following table describes the minimum borrower contribution requirements for transactions that contain donated gifts or grants.
|LTV, CLTV, or HCLTV Ratio||Minimum Borrower Contribution Requirement from Borrower’s Own Funds|
|80% or less||One- to four-unit principal residence||A minimum borrower contribution from the borrower’s own funds is not required. All funds needed to complete the transaction can come from a donated gift or grant.|
|Greater than 80%||One-unit principal residence||A minimum borrower contribution from the borrower’s own funds is not required. All funds needed to complete the transaction can come from a donated gift or grant.|
|Two- to four-unit principal residence||
The borrower must make a 5% minimum borrower contribution from his or her own funds. After the minimum borrower contribution has been met, donated gifts or grants can be used to supplement the down payment, closing costs, reserves, and energy-related improvements.
See B5-6-03, HomeReady Mortgage Underwriting Methods and Requirements, for HomeReady mortgage minimum borrower contribution and down payment requirements.
The donated gift or grant must be documented with either a copy of the letter awarding the gift or grant to the borrower or a copy of the legal agreement that specifies the terms and conditions of the gift or grant. The document must include language indicating that repayment of the gift or grant is not expected, and how the funds will be transferred to the borrower, lender, or closing agent.
The transfer of gifts or grants must be documented with a copy of the donor’s canceled check, a copy of the settlement statement showing receipt of the check, or similar evidence. The documentation must be included in the individual mortgage file.
The table below provides references to the Announcements that have been issued that are related to this topic.