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. Down payment assistance may not be funded in any way through the first lien mortgage, such as premium pricing.
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), regional Federal Home Loan Banks under one of their affordable housing programs, federally recognized Native American tribes and their sovereign instrumentalities, 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 lender may provide the borrower with a contribution to fund borrower-paid closing costs and prepaid fees in the following cases:
The lender credit is derived from premium pricing, as described in Premium Pricing in B2-1.4-02, Loan Eligibility.
The lender credit is sourced directly from lender funds with no expectation for repayment or financial obligation apart from the subject mortgage. Funds passed to the lender from a third party, for the purpose of providing a lender credit, are not eligible as a lender contribution.
The amount of the lender contribution should not exceed the amount of borrower-paid closing costs and prepaid fees and may not be used to fund any portion of the down payment or financial reserve requirements.
When the lender is an interested party to a purchase transaction, any amount of a lender contribution not derived from premium pricing, must be considered as an IPC when calculating the maximum IPC limit for eligibility purposes.
Any excess lender credit required to be returned to the borrower in accordance with applicable regulatory requirements is considered an overpayment of fees and charges and may be applied as a principal curtailment or returned in cash to the borrower. See B2-1.2-01, Purchase Transactions and B2-1.2-02, Limited Cash-Out Refinance Transactions for treatment of the overpayment of fees and charges.
Lenders may also provide borrowers with cash or cash-like incentives that do not need to be reflected on the settlement statement. See B3-4.1-02, Interested Party Contributions (IPCs) for additional information.
The table below provides references to the Announcements that have been issued that are related to this topic.
|Announcement SEL-2018-04||May 01, 2018|
|Announcement SEL-2018-03||April 03, 2018|
|Announcement SEL-2017-10||December 19, 2017|
|Announcement SEL-2016–03||March 29, 2016|
|Announcement SEL-2015–10||September 29, 2015|
|Announcement SEL-2014–07||June 24, 2014|
|Announcement SEL-2013–07||September 24, 2013|
|Announcement SEL-2010–13||September 20, 2010|