FHA - Gifts to Pay off Debt
Do you know that a gift can be used to pay off Borrower's debts to qualify on an FHA Loan?
A regular gift (this does not include a gift of equity) may be used to pay off a Borrower's debt(s) for qualifying purposes as long as both the gift funds and the debt(s) being paid off with the gift funds are accurately disclosed and assessed by AUS TOTAL Scorecard. Whenever a gift is received on an FHA loan, regardless of what it is being used for, it carries certain risks that must be assessed by TOTAL Scorecard for qualifying purposes.
When a gift is received to pay off debt(s), follow the steps below to ensure that TOTAL Scorecard accurately assesses the risk of using gift funds in paying off debt for qualifying:
- Verify that evidence of the debt(s) having a zero balance has been obtained,
- Enter the gift funds received separate from any account balances and check “will be paid off” for debts in loan origination system (not “paid off”), and
- Submit the loan to TOTAL Scorecard
Please refer to the FHA Gift Funds topic in the Fairway Guidelines for additional guidance.