There has been a little-known HUD program that allows couples, graduates, and expectant parents to amass cash gifts from friends and family into a down-payment on a home when using a mortgage loan backed by the Federal Housing Administration (FHA).
The federal government has long (if quietly) tried to help newlyweds-to-be facilitate the application of their families’ wedding gifts toward their down-payments via the FHA Bridal Registry Program. With down-payment assistance programs continuing to be scarce, and mortgage interest rates continuing to remain at historic lows, it would seem that many a newlywed would rather have 100 $100 gifts (which would aggregate enough money for a 3.5% down-payment on a $275,000 home) than have 100 items like blenders, vacuums, silverware, dishware, and knife sets they’ll have to put in storage until they can scrape up the cash to move out of their apartment, and into a home.
The FHA Bridal Registry Program allows for more flexibility, compared to other gifts that can be applied towards a mortgage. Traditional donations for FHA loans require that any gifted funds from friends and family be documented. This documentation process requires that you provide the relationship between the family member and the person receiving the gift, document where the person gifting originally received the funds from, and provide letters from the benefactor stating that funds are intended as a gift and not a loan.
With the FHA Bridal Registry Program, it doesn’t make sense for the borrower to document each of the potentially hundreds of different small cash gifts. With this program the benefactor will not have to provide more than a lender and borrower certification of funds.
How It Works
First you must open a new savings account at your local bank prior to the wedding, and have it tagged by your bank (if possible) as your wedding savings account, or bridal registry account, etc. Then provide the details to your family and friends, so they can make gift payments into this account on your behalf or deposit funds directly into the account. Your gifts can earn interest and can be used towards a down-payment, when using an FHA mortgage loan.
Other important points:
- Maintain a ledger listing the dollar amount, name of the donor, and date for each monetary gift given.
- The bride/groom must supply copies of the bridal registry bank statements to their mortgage lender, verifying the deposits shown in their Bridal Registry ledger.
- Bridal couples are not obligated to use the money in the Bridal Registry account for a down- payment on a home. The couples control how the funds will be used, and if plans change, the money can simply be withdrawn and used for something else.
- This must be a separate savings account for this purpose and couples cannot “co-mingle” these funds into their own checking/savings accounts.
- In addition to the ledger, the bride/groom and mortgage loan officer must also provide a letter — at the time of the mortgage application — that states all monetary gifts were made by friends/relatives who do not have a financial interest in the real estate transaction, nor were any gifts given by the seller of the home or the real estate agent(s).
However, HUD actually allows the program to be used before the wedding, by as-yet-unmarried couples. In fact, the program can even be used outside of a wedding gift context, on what HUD letter of explanation is described as “other legitimate occasions where substantial gifts are typically received by an individual or individuals that may in turn be applied toward the purchase of a home.” So those planning unions in states where same-sex marriage is not yet legal, college graduates and parents expecting a baby should all explore the possibility of using the FHA Bridal Registry Program to redirect their well-wishers’ gifts into a down payment on a home.
As always, give me a call or send me an e-mail should you have further interest in learning more about how this program works.