Selling Guide

Published April 07, 2021

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Can donated gift or grant funds be used towards down payment, closing costs or financial reserves?

Donations from Entities - Grants

A borrower of a mortgage loan secured by a principal residence may use donated funds from acceptable entities to fund all or part of the down payment, closing costs, or financial reserves subject to the minimum borrower contribution requirements described below. Donated funds from an entity are referred to as a grant. Down payment assistance may not be funded in any way through the first lien mortgage,
such as premium pricing.

Grant funds may also be applied towards energy-related improvements if 

  • the program under which the funds are made available allows such a use, and 
  • the minimum borrower contribution requirements are met. 

Grants are not allowed on a second home or an investment property. 

Acceptable entities providing a grant include churches, employers, municipalities, nonprofit organizations (excluding credit unions), regional Federal Home Loan Banks under one of their affordable housing programs, federally recognized Native American tribes and their sovereign instrumentalities, and public agencies.

See B3-4.3-08. Employer Assistance for additional information about grants from employers.

Documentation Requirements

The grant must be documented with either a copy of the letter awarding the grant to the borrower or a copy of the legal agreement that specifies the terms and conditions of the grant. The document must include language indicating that repayment of the grant is not expected, and how the funds will be transferred to the borrower, lender,
or closing agent.

The transfer of grants must be documented with a copy of the donor’s canceled check, a copy of the settlement statement showing receipt of the check, or similar evidence. The documentation must be included in the individual mortgage file.

For additional information, see B3-4.3-06, Grants and Lender Contributions.

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