One of the main differences with conventional loan vs FHA is that FHA loans allow the borrower to receive 100% of the down payment and closing costs as gift funds. With a conventional loan, the borrower has to have at least 5% of their own funds into the transaction. Most conventional loans also require a minimum of 10% down and have much, much stricter qualifying standards as well. FHA loans require a minimum of 3.5% down and ALL of that 3.5% can be a gift from a relative, employer or lifetime family friend. If it is a lifetime family friend that is gifting the money, you will have to provide documentation in the file that person has been a lifetime friend of the family. However, the vast majority of FHA borrowers who use gift funds get them from a family member.
Here are some details on what to be prepared for when you qualify for a FHA loan and you will be using gift funds:
- You loan officer will supply you with a gift letter to be filled out, dated and signed by yourself and the gift donor
- You will need a copy of the bank statements of the account the gift donor is gifting the funds from to show their ability to gift the funds
- If you have the gift donor transfer the money to your account, you will need a copy of the withdrawal of the funds from the donor’s account and a copy of the deposit into your account
- A better way to go is to have the gift donor wire the funds to escrow at closing, in this case you only need a copy of the wire
And FHA also allows you to receive a gift for closing costs as well. So you can receive a gift for closing costs + ALL of the down payment.
So if you are in the market for a house to buy and you are short on funds for the down payment and/or closing costs, you might speak to a relative to see if they can assist. This is a great advantage of the FHA home loan program and not available with any other home financing today.
And here are some highlights to remember about FHA loans:
- To get a FHA loan credit score does not have to be perfect
- FHA loan interest rates are at historic lows
- You can use gift funds for FHA loan down payment
- Maximum FHA loan is $729,750, so you can get a FHA loan in expensive parts of California like Los Angeles, San Jose, San Francisco and San Diego
- Debt-to-income ratios on FHA loans are allowed up to 55% where conventional loans require 41% with less than 20% down
Give me a call (858-922-7899) or email (homeloan8@gmail.com) if you have any questions at all about getting approved for a FHA Loan.
Warmest Regards,
Rob Chomentowski
Sr. Loan Officer (and FHA specialist)
858-922-7899
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