Can gift funds come from the seller, lender or other interested party?

Gifts may be provided by: 
• the Borrower’s Family Member; 
• the Borrower’s employer or labor union; 
• a close friend with a clearly defined and documented interest in the Borrower; 
• a charitable organization; 
• a governmental agency or public Entity that has a program providing homeownership assistance to low- or moderate- income families or first-time homebuyers.  

The Mortgagee may only permit the Borrower’s Minimum Required Investment (MRI) to be provided by a source permissible under Section 203(b)(9)(C) of the National Housing Act, which means the funds for the Borrower’s MRI must not come from: 
(1) the seller of the property; 
(2) any other person or Entity who financially benefits from the transaction (directly or indirectly); or 
(3) anyone who is or will be reimbursed, directly or indirectly, by any party included in (1) or (2) above.  

While additional funds to close may be provided by one of these sources if permitted under the relevant source of funds requirements above, none of the Borrower’s MRI may come from these sources. The Mortgagee must document permissible sources for the full MRI in accordance with special requirements noted above.   Additionally, in accordance with HUD’s Interpretive Rule, Docket No. FR-5679-N-01, HUD does not interpret Section 203(b)(9)(C) of the National Housing Act to prohibit Governmental Entities from providing the Borrower’s MRI where the Governmental Entity is originating the insured mortgage through one of its homeownership programs. 

For additional information see Handbook 4000.1 II.A.4.d.iii(F)(2); II.A.4.d.ii(B); II.A.5.c.iii(F)(2)(a); II.A.5.c.ii(B) available at https://www.hud.gov/program_offices/administration/hudclips/handbooks/hsgh

All policy information contained in this knowledge base article is based upon the referenced HUD policy document. Any lending or insuring decisions should adhere to the specific information contained in that underlying policy document.


Topic Number: KA-04257