Mortgage Gift Rules – How Much?

AZ Mortgage Gift Rules

Mortgage Gift Rules

There are very specific mortgage guidelines that govern how much money a home buyer can receive as a gift.  The joy of home financing was at one time dimmed by strict regulations relative to who could give gifts to who and how much money one could receive in the form of a gift toward their down payment.  Thanks to some relatively recent changes by Fannie Mae the regulations on gift giving in mortgage-land are just about non-existent.

Let’s take a look at what the rules are with regard to receiving a gift for down payment funds for each of the major types of Arizona mortgages available: (click here for a chart outlining these rules too)

1. FHA Mortgage Gift Guidelines:

There is no limit.  An FHA buyer can receive a gift in any amount toward down payment and or closing costs from a relative or “interested party.”

2. VA Mortgage Gift Guidelines:

There is no limit.  A VA buyer can receive a gift in any amount toward down payment and or closing costs from a relative or “interested party.”

3. USDA Gift Guidelines:

There is no limit.  A USDA buyer can receive a gift in any amount toward down payment and or closing costs from a relative or “interested party.”

4. Conventional Mortgage Gift Guidelines:

This is where things get interesting.   If your Phoenix area mortgage lender is a Fannie Mae direct lender (meaning they can sell loans directly to Fannie Mae) than there is no limit with regard to how much a buyer can receive from family in the form of a gift.

If an AZ Mortgage Lender cannot lend based on Fannie Mae guidelines and is subject to Freddie Mac Guidelines or a lender can lend under both but for some reason can only obtain approval with a Freddie Mac product there are limits.  A borrower using a Conventional mortgage under Freddie Mac guidelines would need to show that they have at least 5% of the purchase price of the home they are buying in their own funds prior to considering any gift  funds they have received if they are putting less than 20% down.  If they are putting 20% or more of the purchase price down as a down payment than they do NOT need to have any funds from their own asset account as the entire down payment may come from a gift.

Now here is a little yet very effective mortgage trick (a legal trick by the way) to know if you are putting less than 20% down, need a gift and find yourself having to utilize a Conventional loan and only have access to an approval based on Freddie Mac’s guides.  Freddie states that funds that have been gifted to a borrower from someone who has lived with them for the past 12 months or from a fiance and when the person giving the gift will be living in the new home being purchased may be considered the borrower’s funds and NOT a gift.

Real Life Success Story:  We just closed an AZ Conventional home loan and utilized this exact strategy.  The borrower needed to use gift funds for their down payment, did not have 5% of the purchase price in their own account and was not putting 20% down.  The system we run loans through for Fannie Mae approval (called “DU”) would not approve this borrower.  We were then forced to utilize Freddie Mac’s approval system (called “LP”) for mortgage approval.   Side note, sometimes Freddie’s system will approve a borrower when Fannie’s system will not and vice versa.   I was able to show the underwriter that although the borrower received a large gift for his down payment, the gift came from his fiance and that his fiance was going to live in the new home with him.  As a result, the underwriter counted the gift money toward the borrowers own funds and did not consider the funds a gift.  This then allowed us to meet Freddie Mac’s “5% from the borrower’s own funds” rule and we closed the loan!   A little in-depth I know :).  Just wanted to share a neat way to creatively use guidelines toward a buyer’s advantage!

Please let me know if you have any questions related to how today’s down payment guidelines may impact your Arizona mortgage approval.

By Jeremy House
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