We all need a little help sometimes.
When it comes to mortgage qualification, this help can often come in the form of a financial gift. Giving gifts money from a donor’s business is fairly typical, but sometimes a person wants to give a gift directly from their business.
This creates a few extra steps for mortgage approval, but it’s perfectly acceptable. When used properly, gift money from a donor’s business can be the key to getting the home you desire.
Gift Money from a Donor’s Business Can Be Used for Mortgage Qualification
This is actually an issue that Fannie Mae deals with a lot. So much, in fact, that they have included the topic in their Top Trending Questions page. Their answer makes it clear that yes, you can use gift money from a donor’s business. However, there may be a few extra steps that you, the donor, and the lender will need to complete in order to finalize your loan.
Potential Uses for the Gift
Receiving a gift before qualifying for a mortgage has many advantages, and you can use the funds for different purposes. The most obvious use is for a down payment, which is one of the biggest barriers for many people when it comes to mortgage qualification. However, you can also use the funding for closing costs, which can be thousands of dollars on a single real-estate transaction.
In many situations, the lender will require that you have financial reserves to protect against mortgage default. Basically, they simply want you to keep money on hand in case you lose your job or experience another financial problem that could put the mortgage loan in jeopardy. Fortunately, you can use your gift funds to complete the financial-reserve requirements, which will make getting the loan much easier.
Make Sure the Donor is an “Acceptable” Donor
One of the first steps you’ll need to take is to verify that the donor in question is an acceptable donor. In this case, the definition of “acceptable” remains exactly the same as donors who are giving a gift from their personal accounts.
According to Fannie Mae, most close family members are perfectly acceptable as gift-fund donors. This includes a spouse, a child, or any other dependent. It can also include anyone who is related to you “by blood, marriage, adoption, or legal guardianship.” If you have a fiancé or domestic partner, you could receive a gift from their business as well. Verifying that the donor is an acceptable person is standard procedure for this and any other loan that will be supported by Fannie Mae, so this is an easy step, and most lenders will be able to complete it efficiently.
Once you have verified that the donor is acceptable, you’ll then have to prove that they actually own the business in question.
Provide Proof That the Donor Owns the Business Account
If your donor is acceptable, you would assume everything is good-to-go, but you actually have a few more steps before you can use gift money from a donor’s busines, including the verification that your donor does in fact own the business account. This might seem like a waste of time, but Fannie Mae is especially diligent when it comes to verifying the sources of your gift funds.
This step is also similar to regular donors. The lender will verify that there are sufficient funds in the account, and while doing so will also verify the owner of the account. There is a wide variety of information that you can use, but most bank documents will outline the specific owner and will likely be enough for verification.
Make Sure the Right Information Is On the Gift Letter
When giving a gift, your donor will need to provide a document called a “gift letter.” This is important for all gifts that will be used for mortgage purposes, but it is especially important if your funds will come from a business account, which will come under more scrutiny.
To complete the gift letter, you’ll need to make sure there is all the required information. Some of these might seem obvious, but forgetting can hang up the mortgage application for days, even weeks, so make sure the right information is included.
- First, you’ll need the name of the gift giver, as well as their address. This will likely need to be their personal address, not the name and address of the business, although including this information in the document won’t hurt.
- Next, be sure to include the relationship between you and the donor. Whether the donor is your parent, child, sibling, or fiancé, make sure this information is included.
- Another important bit of information is the amount of the gift. Be sure to include the amount, down to the last penny, so the lender knows exactly how much you will receive.
- An essential point, and one that is often overlooked, is verification that the money is in fact a gift and not a loan. Make sure the document states, in perfectly clear language, that the donor does not expect to receive repayment for the gift money.
- Finally, be sure to include the signature of the gift giver so the lender has legal documentation that they have agreed to all the term, including the amount and the nature of the gift.
Same Restrictions Apply When Using Funds from a Business
When you use gift money from a donor’s business for mortgage qualification, the same general restrictions and contribution-requirements will apply. For example, as the borrower, if you are purchasing a property with four units, you will still be required to provide a 5% contribution from your own funds. Once you meet this requirement, you can use the gift to supplement your down payment, closing costs, or financial reserves.
You will also have to verify that the funds to cover the gift are either in the donor’s account or have already been deposited.
Helping You Get the Most from Your Next Mortgage Loan
Using gift money from a donor’s business is a great way to increase your chances of mortgage approval. If you have any questions about using gift funds towards your mortgage, contact the team at San Diego Purchase Loans today!
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