FHA Gift of Equity
FHA World - FHA Gift of Equity
A Gift of Equity is a transfer of ownership of a property to a family member or someone with whom the seller has had a previous relationship, at a price below or at the current market value. The difference between the actual sales price and what is owed on the home is called the Gift of Equity. Most lenders allow the gift to count as a down payment on the home.
A Gift of Equity requires a letter that is signed by both the seller and the buyer. For the purpose of obtaining a mortgage a Gift of Equity is treated as a purchase transaction.
A sales contract will be needed.
Getting an FHA loan has never been easier:
- FHA loans offer simple credit qualifying
- Simple processing
- Simple terms
- Low interest rates
- Low down payment (3.50%) can be a Gift of Equity
First, you need to get pre-approved. This is an easy step and does not cost you anything. Also, this step is very important -- as many people search out homes on their own just to find out that the house they found is not in the price range that they qualify for. This approach turns into disappointment and lost time. Most realtors will only work with people who have been pre-approved.
Down Payment and Gift Funds
Down Payment - FHA mortgage requirements for a home purchase have a minimum down payment of 3.5% of the sale price. The down payment must be sourced and seasoned and must come from the borrower or the donor of gifted funds or gift equity.
According to the new FHA Policy changes, which go into effect in early summer of 2010, FHA will require 10% down payment for anyone purchasing with a FICO score lower than 600.
Gift Funds - Down payment funds can be gifted from a relative, spouse, or a domestic partner. The gifted funds must be sourced and seasoned and cannot be borrowed by the donor.
Seller Concessions and Reserves
Seller's Concessions - FHA mortgage requirements allow for seller concessions of up to 6% of the sales price.
The new FHA Policy changes limit seller concessions to 3% of the sale price. These will go into effect in early summer of 2011.
Reserves - FHA does not have any financial reserve requirements on single family homes and duplexes. Three months of reserves are required on 3 to 4 unit family homes.
FHA Purchase Loan
What documentation will I need?
- Fully Executed Sales Contract
- W2's for the past 2 years
- Current pay stubs for the past month
- Bank statements for last 2 months for each active account with sufficient reserves (all pages)
- Latest retirement statement for each active account (all pages)
- Residence addresses for past 2 years (if you reside at your current address for less than 2 years)
- Clear copy of Driver’s License
- Clear copy of SS card
- Addresses and loan information of other real estate owned (if any)
- Personal tax returns for the past 2 years, current income statement & balance sheet for business (self-employed only)
Today’s historically low interest rates make now the perfect time to purchase a new home.
Minimum Credit Score of 600
FHA World - FHA Gift of Equity
Generally, a borrower who has made timely payments for the last 12 months serves as a guide and demonstrates their willingness to repay future credit obligations. New FHA Policy changes require minimum FICO score to be 600 for 85% loan-to-value. These FICO requirements will go into effect in the spring 2010. However, most individual lenders will still require credit scores higher than 640.
A perfect credit score is not needed for an FHA loan approval. In fact, even if you have had credit problems, such as a bankruptcy, it's easier for you to qualify for an FHA loan than a for a conventional loan. Sometimes scores down to 600 are accepted if there are compensating factors that offset the credit risk
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