Can money be gifted as down payment when using FHA?

Question

My parents are looking at partnering with me and my wife on a triplex. I am going to be living in one of the units to be able to qualify for an FHA loan. My parents want to be able to gift me the money for the down payment and then be 50/50 partners on the deal. How have others structured similar partnerships? Is there anything to avoid or to be sure to do when having money gifted as down payment? I know there have been BP episodes about this tagging the links to them would be helpful too. Thank you in advance. Any advice is appreciated.

Sasha Mohammed · Answer

Hi @William Freeman there is a lot to unpack here, i'll try to keep it simple

simple question, simple answer - YES you can use gift funds from your parents for an FHA loan. however, there are limitations on how much, and what it can be applied to and how. A lender has the option to "overlay" FHA guidelines on this, too, so you'll want to talk to your individual lending institution during your pre-approval process regarding specifics.

... also, the lender will want to "source" the funds of the down payment. your parents would have to complete a "gift letter" indicating that this is not a loan, this is a gift, and there is no repayment on it. Also, they will likely have to provide 2 months of their bank statements to show the underwriter where those funds came from (or prove they are 2-month seasoned).

A couple other things to consider - FHA triplex (3 and 4 unit specifically) will have a Self Sufficiency guideline added. You can google that (to keep the post short-ish lol). Lastly, since you're mentioning partnership.... given that this is your parents, on an FHA loan, I would just stay away from trying to do an LLC after closing if that's what you were considering.

hope this was helpful!

William Freeman · Answer

Hi @Dave Skow,

That is part of my question. What is the best way to structure it? From my understanding most people in similar situations just would have them on the deed and I would be the only one on the loan. As a few others have mentioned their funds would have to be seasoned, correct? They want to be able to buy in on a deal I am looking at and would purchase with an FHA loan. They would be using some of the equity that they have in their current house in the form of a HELOC. I assume that would not justify as being seasoned money.

Dave Skow · Answer

@William Freeman- yes - gifted  funds  are  possible   but ...how are they  structuring the partnership?  are they  going on  title ? on the loan ?

William Freeman · Answer

This was very helpful thank you.