FHA gifts are OK

Mortgage Talking Points…Simplifying the Complicated™

FHA - Loans From Immediate Family


With DPAs going away, another source of funds to purchase a home is a LOAN from an immediate family member. Although it cannot be a requirement of the loan, qualified first time homebuyers can borrow the money from their parents and repay it with the $7,500 tax credit authorized by HR3221 upon receipt of their income tax refund.
FHA Guideline
FHA will allow family members to lend 100% of the full amount of cash required to get into a home, including the down payment. There is no additional "cash investment" required from the borrowers. Details are:
The loan can include some or all of the down payment, closing costs and pre-paids.
Immediate family only, meaning parent, grandparent, son, stepson, daughter, stepdaughter, legally adopted child, or foster child.
The loan can be unsecured or secured against the subject property. The lien on the property must be the family member lending the monies – not a third party.
It is acceptable for the family member to borrow the funds, for instance, from their financial institution. The institution can place a lien on the parents’ property, but not the borrowers’ (subject) property. In addition, the borrowers cannot sign the note with the financial institution.
The source of funds that the family member is using for the loan cannot be directly or indirectly from anybody with a financial interest in the transaction.
Payments, if applicable must be included in the debt ratio.
No balloon payments can be due within 5 years.
The CLTV can exceed 100% of the sales price (or value) of the property, but there can be no cash back to the borrower beyond a refund of earnest money deposit.
The first mortgage loan amount calculations are not affected.
A copy of the documentation is required before approval, and the executed paperwork must remain with the loan file.
(This is for informational purposes only.
Refer to Mortgagee Letter 96-58, and HUD Handbook 4155.1 REV-5, 1-13.E. for full details