The lender must document the transfer of the funds from The Home Downpayment Gift Foundation to the borrower. Acceptable procedures include obtaining a copy of The Home Downpayment Gift Foundation's withdrawal slip or canceled check, along with the borrower's deposit slip or bank statement showing the deposit to the borrower's account. In cases, where HDGF provides the funds in the form of a cashier's check, the lender must be sure to provide evidence that the funds used to purchase the cashier's check came from HDGF. A withdrawal slip, specifically showing HDGF's acount number from which the funds were obtained, would be sufficient evidence, along with a copy of the cashier's check. If the funds are not deposited to the borrower's account prior to closing, the lender must specify that the above instructions be provided to the closing agent in the escrow instructions for closing. In addition, the lender must make certain that these procedures were followed and obtain the related documentation from the closing agent and include it in the file.

The file must also contain a gift letter specifying the dollar amount, signed by HDGF and borrower, stating no repayment is required and showing HDGF's name, address, telephone number, and relationship to the borrower.

When gifts are provided by a non-profit or municipality through a Down Payment Assistance Program, the same basic rules regarding documentation of gifts apply. The lender must obtain evidence from the HDGF of the amount of funds being provided, as well as evidence that no repayment by the borrower is required. Evidence of the actual transfer of funds can be shown as a transaction on the HUD-1. Costs for processing a DAP may not be included as part of the borrower's cash investment, but may be included in secondary financing.

Reference: HUD Handbook 4155.1 REV-4, CHG-1, Paragraph 2-10C.

Check current FHA Loan Limits: U.S. Department of Housing and Urban Development

Read HUD's Opinion on Nonprofit Agency Participation in Single Family FHA Activities

The initial HUD acceptance of seller assisted down payment programs includes a commitment from HUD which states that in the event of a rule change reversing or discontinuing the availability of seller assisted down payment programs, all organizations would be granted a six month period of time following the promulgation of that change. 

Click here to review the initial HUD acceptance document.

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