Fannie Mae won't allow "gifts" for investments, but what is that?

[Matt Powell]

Hi all,

I'd like my first deal to be a buy-and-hold property. I'd considered using the BRRR strategy (buy, rehab, rent, cash-out refinance to 30-year fixed) with a portfolio lender, or have more recently been researching the HomeStyle product from Fannie Mae that rolls rehab costs of up to 50% ARV into a conventional mortgage. My question applies to both scenarios.

I'd hoped to use a private lender (my parents) for the down payment and closing costs. But I recently learned that Fannie Mae doesn't allow "gifts" to be used for down payment, closing costs, etc, on an investment property. Likewise, I've heard portfolio lenders frown upon this.

So what qualifies as a gift? I fully expect to have a legally binding contract with my parents that obligates me to repay the loan in full, with specific terms. Does that count as a gift with Fannie Mae? Would a portfolio lender generally allow a private lender to provide down payment and closing costs on one of their loans? Does it matter that the private lender is my parents?

Thanks, much appreciated. Link to Fannie's "gifts" page linked below.

https://www.fanniemae.com/content/guide/selling/b3...