Down payment assistance programs are designed for homebuyers who can be approved for a home loan but who cant afford the down payment and closing costs needed to complete the purchase.
Gifts from the seller to the buyer
The seller of a home is not permitted to directly give the buyer a gift of the down payment money. The seller of the home, however, can help with the down payment, under certain circumstances. What is allowed is: the seller of a home can enroll their home in a down payment assistance program. The seller places the amount they want to contribute to the down payment of the home into the fund plus an additional fee for the service. Then, at the time of closing the funds are electronically transferred from the organization holding the funds to the buyers lender.
Limits of gifts
The lender will not allow a gift that would result in the loan exceeding the appraised value of the home. If the buyer is going to receive a gift, it must be at or under 100 percent of the homes appraised value.
HUD gift assistance
HUD does not approve or disapprove of gift assistance programs; it simply issues the guidelines and leaves the burden of finding an acceptable gift assistant program up to the lender. HUD does state that a typical gift is between one and seven percent of the value of the home and that the gift can be used on the purchases of new or existing homes.
Your lender can help
Your lender can help you find an acceptable gift assistance program. Not all lenders participate in such programs. If you are looking for this type of arrangement, you will need to find a lender that is willing to work with you.
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