FHA loans benefit borrowers with a 3.5 percent down payment option, but they also enable buyers to receive the entire down payment as a gift from a family member or other approved donor. Conventional mortgages, however, require borrowers to contribute at least some of their own money. The HUD Handbook states that approved sources of down payment funds for FHA loans are relatives, employers or labor unions, close friends with a “clearly defined and documented interest” in the borrower, approved charitable organizations, and public entities or government agencies offering assistance to first-time buyers or low- to moderate-income families. In all cases involving third-party funds, donors must write gift letters clearly stating that the money is being given to the borrower freely and is not a loan. Lenders also require bank statements from the family member or donor to document the transfer of gift funds to the borrower. | Read More