FHA mortgages provide down payment assistance programs that make this loan very accessable to buyers with little money for a down payment. Even with out the gift or grant programs a buyer can usually get an FHA loan with as little as a 3% towards the loan. This means any money fron the borrower applied toward closing costs or down payment. The loan structuring is more confusing than conventional loans but the interest rate is excellent so it is worth the effort.

Gifts for both the down payment and the closing expenses may come from acceptable sources such as: family member, close friend, borrower's employer or labor union, a charitable institution, or a governmental agency or public entity that has a FHA-accepted homeownership assistance program.

All of the money for the down payment and closing costs may come from a gift or grant program. The funds must be documented to show that no repayment is required and the donor will not put a lien on the property. The gift may not be used to meet the borrower's 3 months PITI (principle, interest, taxes, and insurance) reserves that are needed if they are purchasing a for 3 and 4 unit property.

Gifts absolutely can not be used to increase the borrower's remaining reserves after closing that could change the Loan Prospector findings from a Refer or Ineligible to an Approve Eligible or Accept status. The underwriter must review the findings to make sure gift money is not used in the calculations of the remaining reserves reviewed by the system. Any gift amount must be deducted from the reserves shown on the findings and the loan must be re-run through loan prospector to provide an accurat calculation of the borrower's assets. Only then can they obtain a clear approval.

A gift letter must specifically state there is no repayment and clarify that the gift donor is not tied to the loan transaction in any way.

The transfer of funds from the gift donor to the borrower is required. A lender must document the transfer of funds from the donor's account to the borrower's bank account by obtaining a copy of the canceled check or other satisfactory withdrawal document that shows the gift is leaving the donor's account and is being deposited into the borrower's account. If the gift amount is being received at the closing, a certified check from the donor and a copy of the withdrawal receipt from the donor's bank account is required. The closing agent must make copies of these documents to forward to the lender with the closing package.

This is a little tricky. If the donor borrowed funds for the gift he must provide documentation that shows, with out a doubt, that the funds were not borrowed from a party to the transaction. Cash-on-hand from the donor is absolutely not acceptable.

Other benefits with an FHA mortgage include: low interest rates, forgiving about minor past credit problems (even while in a chapter 13), and a no qualifying stream line refinance. As you can see everyone should consider an FHA loan.