Reasons for the current FHA scrutiny of gifts?

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In summary, there have been recent requirements by the Federal Housing Administration for banks to scrutinize borrowers who receive gifts of money to help purchase a house. This includes obtaining an "affidavit of gift" and a bank statement showing the funds were withdrawn from an account. These regulations were put in place due to people falsely claiming gifts as loans from friends or family, which cannot be counted as a down payment. This requirement may be a recent one, as in the past, banks did not investigate the source of down payments. It is possible that the government is trying to prevent small-scale money laundering through real estate transactions by requiring gifts to come from legitimate banking transactions.
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Stephen Tashi
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Recently, I've encountered two examples of how the Federal Housing Adminsitration requires banks to scrutinize borrowers who acknowledge receiving gifts of money to help purchase a house. The banks require an "affidavit of gift" document from the giver and a copy of a bank statement showing that the gift funds were withdrawn from an account - a copy with the account number showing, not redacted.

What abuses led to these regulations? Were people doing a type of pyramid scheme where they borrowed money from one bank and gifted it to themselves to bolster the financial statements they submitted to a different bank?
 
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It's probably simpler than that. People telling the bank it was a gift when in fact it was a loan from a friend\relative that had to be repaid.
 
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Yes you can’t count a personal loan from a family member or friend as a down payment
 
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BWV said:
Yes you can’t count a personal loan from a family member or friend as a down payment

That rule may be an old one, but when I bought my house in the 80's, the bank didn't investigate where I got the down payment. I have the impression that the gift affidavit is recent requirement. Is that correct?
 
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Could the government be trying to reduce small-scale money laundering via real estate transactions? Small scale since the OP stipulates an FHA loan, not a buyer plunking down bags of money in an all-cash transaction.

Suppose people launder small amounts of money, below $10,000 USD, as apparent gifts to FHA home buyers. Demanding gifts be from legitimate banking transactions might close that avenue.
 

1. What is the reason for the current FHA scrutiny of gifts?

The Federal Housing Administration (FHA) is currently scrutinizing gifts because they can potentially be used as a way to circumvent down payment requirements and qualify for a mortgage that an individual may not otherwise be eligible for. This has led to an increase in fraudulent activities involving gifts in the mortgage industry.

2. How does the FHA determine if a gift is legitimate?

The FHA has specific guidelines in place to determine if a gift is legitimate. They require a gift letter, signed by both the donor and recipient, stating that the gift is not a loan and does not need to be repaid. The FHA also requires documentation of the donor's ability to give the gift, such as bank statements or a letter from their employer. Additionally, the FHA may request evidence that the gift has been transferred from the donor's account to the recipient's account.

3. Are there any restrictions on who can give a gift for an FHA loan?

Yes, the FHA has restrictions on who can give a gift for an FHA loan. The gift must come from a family member, employer, or charitable organization. The FHA also has specific guidelines on the amount of the gift that can be used towards the down payment and closing costs.

4. What are the consequences of using a fraudulent gift for an FHA loan?

If a fraudulent gift is used to obtain an FHA loan, it can result in serious consequences for both the borrower and the lender. The borrower may face legal action and could potentially lose their home if the fraudulent activity is discovered. The lender may also face penalties and could be required to buy back the loan from the FHA.

5. How can borrowers ensure that their gift is legitimate and compliant with FHA guidelines?

Borrowers can ensure that their gift is legitimate and compliant with FHA guidelines by following the proper documentation process and being transparent and honest about the gift. This includes providing all necessary documentation, such as the gift letter and proof of transfer, and ensuring that the gift meets all restrictions and guidelines set by the FHA. It is also important for borrowers to be aware of any potential red flags or warning signs that may indicate a fraudulent gift, such as a large gift from an unknown source or incomplete documentation.

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