How do lenders document gifts, including gifts given in the form of cash?

Cash on Hand is not an acceptable source of donor gift funds.  The Mortgagee (Lender) must obtain a gift letter signed and dated by the donor and Borrower that includes the following: 

• the donor’s name, address, telephone number; 
• the donor’s relationship to the Borrower; 
• the dollar amount of the gift; and 
• a statement that no repayment is required.   

The Mortgagee must verify and document the transfer of gift funds from the donor to the Borrower in accordance with the following requirements:  

a. If the gift funds have been verified in the Borrower’s account, obtain the donor’s bank statement showing the withdrawal and evidence of the deposit into the Borrower’s account. 

b. If the gift funds are not verified in the Borrower’s account, obtain the certified check or money order or cashier’s check or wire transfer or other official check evidencing payment to the Borrower or settlement agent, and the donor's bank statement evidencing sufficient funds for the amount of the gift.    


If the gift funds are paid directly to the settlement agent, the Mortgagee must verify that the settlement agent received the funds from the donor for the amount of the gift, and that the funds were from an acceptable source.   

If the gift funds are being borrowed by the donor and documentation from the bank or other savings account is not available, the Mortgagee must have the donor provide written evidence that the funds were borrowed from an acceptable source, not from a party to the transaction, including the lender.   

Regardless of when gift funds are made available to a Borrower or settlement agent, the Mortgagee must be able to make a reasonable determination that the gift funds were not provided by an unacceptable source (i.e., not from a party to the transaction, including the lender), and were the donor’s own funds.    

For additional information see Handbook 4000.1 II.A.4.d.iii(F)(2)(b) and (F)(3) or II.A.5.c.iii(F)(2)(b) and (F)(3) 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-04359