Gift Funds for a Kentucky FHA Mortgage

The source of the down payment must always show Kentucky FHA gift funds and their source (usually a relative). It cannot be a personal loan or cash.

Common Gift Fund Issues:

Scenario 1 – only gift funds being used in the transaction
Gift amount: $5,000

Common submission problem:

• Source of down payment submitted as “checking and savings account.”
• Asset submitted as “checking account” with the financial institution as “Gift from Relative.”

Correct submission practice:

• Source of a down payment should be submitted as an “FHA Gift from a relative for $5,000”
• If funds are not yet in the bank account, DU should be submitted as miscellaneous assets, “Gift for $5,000”

Scenario 2 – (gift funds and borrower’s own funds being used in transaction)
Gift amount: $5,000

Common submission problem:

• Checking account has $7,000 in total – including the gift.
• Source of down payment submitted as “checking and savings account.”
• Asset submitted as “checking account”:
  • Financial institution with $7,000 AND
  • Miscellaneous asset, “Gift from relative of $5,000”
• When ran this way, the gift is put through twice and assets are overstated by $5,000.

Correct submission practice:

• Source of down payment should be submitted as an “FHA Gift from relative $5000.”
• Since the gift fund is already in the Borrower’s bank account, DU should be submitted as “checking or savings” in ABC account in the amount of $7,000. DU will recognize that $5,000 of the $7,000 in the account is from a gift. 

• Checking account currently has $2,000. The $5,000 gift will be wired to the title company.
• Source of down payment submitted as “checking and savings account.”
• Asset submitted as “checking account:”
  • The financial institution with $7,000, AND
  • Miscellaneous asset, “Gift from relative of $5,000.”

Correct submission practice:

• Source of down payment should be run as “FHA Gift from relative $5,000.”
• Since gift funds will be provided to the title company and not the borrower:
  • DU should be submitted as checking or savings in ABC account in the amount of $2,000, AND
  • Miscellaneous assets, “gift funds as $5,000.”