If Someone Just Offered to Help With Your Down Payment, Read This First
If someone in your life just offered to help with your down payment, stop and listen before you deposit a single dollar. That's exactly where Lauren found herself.
Lauren was buying a home near Myrtle Beach using an FHA loan, and her aunt wanted to help cover the down payment. Like a lot of buyers, Lauren assumed the easiest path was to just have her aunt hand her the cash and deposit it into her account. She figured she could explain where the money came from later if anyone asked.
That instinct, as common as it is, is exactly what causes FHA files to stall.
What Most Buyers Get Wrong About Gift Funds
FHA guidelines are specific about who can give a gift and how that gift has to be documented. HUD 4000.1 states that gifts may be provided by the Borrower's Family Member, along with a short list of other approved donor types. An aunt helping a niece fits squarely into that category, which was good news for Lauren.
But the guideline doesn't stop there. It also requires a specific paper trail: "The Mortgagee must obtain a gift letter signed and dated by the donor and Borrower that includes: the donor's name, address, and telephone number; the donor's relationship to the Borrower; the dollar amount of the Gift; and a statement that no repayment is required." And one line trips up more buyers than any other: "Cash on Hand is not an acceptable source of donor gift funds."
That second sentence is where Lauren's original plan nearly went wrong. Handing over cash and depositing it, even from a loving family member, does not satisfy FHA's documentation requirements, because the underwriter can't trace where that cash actually came from.
How Lauren's Gift Got Documented the Right Way
Once Lauren understood the rule, the fix was simple. Instead of cash, her aunt sent the gift as a bank-to-bank transfer directly into Lauren's account. They sat down together and signed a gift letter that spelled out her aunt's name, address, and phone number, her relationship to Lauren, the exact dollar amount, and a clear statement that the money never needed to be paid back.
Because the transfer was traceable and the letter covered everything the guideline requires, underwriting reviewed the gift without a single follow-up request. No delays, no scrambling for extra bank statements at the last minute, no confusion about where the money came from.
What To Do If You're Getting Down Payment Help
If someone in your life is offering to help with your FHA down payment, here's the move: ask them to send the money as a bank-to-bank transfer or a check, never cash. Then sign a gift letter together that includes their name, address, telephone number, their relationship to you, the dollar amount, and a statement that no repayment is required. Bring that letter and the donor's bank statement to your loan officer before you deposit the funds, not after.
Getting the order right, documentation before deposit, is the single biggest thing that separates a smooth FHA closing from a stalled one.
I Find the Path
Every buyer's situation looks a little different, and gift funds can get complicated fast when more than one donor is involved or when funds need to be sourced and seasoned. I'm Jason Sharon, a licensed mortgage broker at Home Loans Inc, and I've been helping buyers navigate FHA paperwork since 2015. If you're getting help with a down payment, call 843-569-7283 before you deposit anything, and let's make sure it's documented right the first time.
Home Loans Inc - Jason Sharon, Mortgage Broker. Company NMLS #1728740, Jason Sharon NMLS #1281448. Equal Housing Opportunity.
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