Are VA Loan Gift Funds Allowed?

va loan gift fundsVA loans have cemented their position as one of the most valuable loan products in the market. The loan product offers a lot of amazing benefits to eligible veterans. These include, in addition to others: zero down payments and no cap on seller’s contribution to the closing costs. Now, when it comes to closing costs it is not really that easy to find a seller. A seller should be ready to pay the costs and all such costs have to be taken care of before the loan is sanctioned. Apart from under certain special circumstances. But, there is an easy solution out of this. And that solution is VA Loan Gift Funds.

What Are Gift Funds?

Gift funds are very simple to understand. They work exactly like a gift does. Your friends or family give you a certain amount of money without any conditions. VA loan Gift funds allow the money to be used for covering the closing costs towards a VA loan. However, there is a set of restrictions that the applicants need to adhere to. These conditions are generally easy for the loan applicants to fulfill. And are, of course, much less stringent than a regular home loan any given day.

Applicants cannot just show up with a pile of cash and call them gift funds for a VA loan. If they get such a gift fund, then they must be able to prove that it came from a legitimate source. Such a source can include family members or even family-like relations, where even friends may qualify. Even if the gift funds are coming from a known person, they should also have a legitimate paper trail. This means these funds should have records with an established financial institution or a bank.

Who is the Source of the Gift Fund?

Another important thing to keep in mind is that no person who is involved in this entire transaction process, in any way, can act as a source of the gift fund. So, someone like a lender cannot become a sponsor of VA loan gift funds. To make sure that this condition is met, the applicant needs to produce a letter with the gift fund. This letter will include all the important details of the donor. It will also include the amount of gift funds, and the date of transfer of these funds to the recipient. This letter also carries an important disclaimer that clearly states that the donor of the gift fund. This donor, in no way, is expecting a repayment of the funds they have gifted.

VA Loan Gift Funds

In the case of VA loans, there are a lot of provisions that make it easier for the applicants to get the loan. The same goes for gift funds as well. Unlike other loan products, a loan applicant is not required to provide a copy of the “gifter’s” bank statement to the lender or to the VA authorities. All they need to do is to present a cancelled cheque, which is considered ample proof of documentation for a VA loan.

Gift Funds can most definitely be used to fund a VA loan and as it turns out it is easier to get a gift fund with a VA loan than with a regular loan.

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