"Can a Down Payment Gift Come From My Parents' Business Account?"

Your dad has run the same plumbing company for twenty-two years, and most of his money is in the company's operating account, because that is where it lands every month. Last night he offered to cover a good part of your down payment and asked if he could wire it straight from the business. You said you'd find out, and this morning the first three pages you read said a gift has to come from a personal account.

Yes, a down payment gift can come out of a business your parents own. Freddie Mac's guide names a business owned by a Related Person as an acceptable donor. Fannie Mae and FHA list relatives and other individuals as donors and say nothing about a relative's business account. On those files the lender decides, and the gift letter has to tie the account to the relative who owns it.

I'm Jeff Moran, a mortgage broker in Bluffton, South Carolina, originating since 1996, NMLS #483943, through C2 Financial Corporation, licensed in fifteen states. I want to walk you through what each of the three guides says, which one names a business as a giver, and what goes in the file so your dad's wire counts the first time.

A gift is money that does not have to be paid back; if your parents expect repayment, it is a loan, and that debt changes your debt ratio. And money coming out of a business you own yourself follows a different rule, which I covered in using money from your own business account for a down payment.

Freddie Mac names a business owned by a relative as a gift donor

Freddie Mac's guide section on other sources of funds lists four kinds of gift donor for a loan on your primary residence or a second home. They are "A Related Person," "A business owned by a Related Person," "A trust established by a Related Person," and "The estate of a Related Person." Related Person is a defined term in Freddie Mac's own glossary, and the lender checks your relationship against that definition. Your parents are the plain case.

So on a loan that goes to Freddie Mac, your parents' company can be the giver in its own right. The guide says the gift funds "must be transferred directly from the donor's account in a financial institution" to your account or to the settlement or closing agent. When the donor is the business, the donor's account is the company's bank account, and the wire your dad wants to send is the transfer the guide describes.

The gift letter has a few extra lines when a business is the giver, and Freddie Mac spells them out in the same section. It is signed by the Related Person who has an ownership interest in the business, so your dad signs it as an owner. It states the donor's name and that the funds are given by a business owned by a Related Person, and it gives the business's mailing address and telephone number. It states the actual or maximum amount, says the gift does not have to be repaid, and says your dad has an ownership interest in the business.

Your lender confirms that you received the gift using the bank statements from both accounts, a canceled gift check, or the withdrawal slip and your deposit slip. A payment app counts only when the paperwork shows the money went directly from the donor's bank account to yours or to the closing agent.

Two limits from the same section. Gift funds are not an eligible source on an investment property. And on a second home where the loan is more than 80 percent of the value, at least 5 percent has to come from your own funds before the gift fills in the rest.

Fannie Mae lists relatives as donors, and the lender decides on the account

Fannie Mae's section on personal gifts reads differently. A gift can come from a relative, which the guide defines as your spouse, your child or another dependent. It can come from "any other individual who is related to" you "by blood, marriage, adoption, or legal guardianship." It can also come from someone who shares a familial relationship with you, such as a domestic partner or a fiancé. Every one of those donors is a person.

For "donations from entities (grants)," the section sends the lender to Fannie Mae's section on grants and lender contributions. That list is government agencies, housing finance agencies, 501(c)(3) nonprofits, a Federal Home Loan Bank, your employer, a recognized Indian tribe, and the lender itself. A plumbing company your parents own is not on it.

The guide does not say a gift cannot leave a business account. On a Fannie Mae file the donor is your parent, as a person. The lender has to verify that enough money to cover the gift is "in the donor's account (such as a checking, savings or investment account, or trust or estate account owned by the donor)" or already in yours. The guide is silent on a business account the donor owns, and the lender decides. I ask for proof that your parent owns the business, so the account on the statement can be tied to the person named on the gift letter. I also ask the lender's underwriting team early, before the wire lands rather than after. The gift letter itself is the familiar one: the amount, the statement that no repayment is expected, and the donor's name, address, telephone number and relationship to you.

FHA gift rules and a family member's business account

FHA's handbook, in its asset requirements, lists who may provide a gift. The list is your Family Member, your employer or labor union, a close friend with a clearly defined and documented interest in you, a charitable organization, and a government agency with a homeownership program. Family Member is a defined term in the handbook's glossary. A business owned by a family member is not on the list, and the handbook does not address it, so the lender decides here too. The handbook does say that "Cash on Hand is not an acceptable source of donor gift funds."

FHA's gift letter is signed and dated by the donor and by you, and it carries the same items: name, address and telephone number, relationship, dollar amount, and a statement that no repayment is required. The transfer is documented with the donor's bank statement showing the withdrawal and your deposit, a canceled check, a withdrawal receipt, or evidence of the electronic transfer. At closing, the handbook accepts a wire from the donor's account or a cashier's, bank certified or other official bank check.

The handbook adds a standing rule. "Regardless of when gift funds are made available to [you] or settlement agent, the Mortgagee must be able to make a reasonable determination that the gift funds were not provided by an unacceptable source." When the wire comes from a company, that determination is the whole question, and the ownership paperwork is what answers it.

FHA also protects your minimum required investment, the part of the purchase the handbook says has to be at least 3.5 percent of the adjusted value. Adjusted value is FHA's own term for the figure your loan gets measured against, and it comes out of the price and the appraisal. That money cannot come from the seller, from anyone who financially benefits from the sale, or from anyone being reimbursed by them. If your parents' company is the builder, or has any stake in the sale, its money cannot be your minimum investment. Buying from a relative or a business partner with FHA has its own rules, covered in FHA identity-of-interest transactions.

The steps, in the order I'd take them

1. Please tell me early which account the gift is coming from. On a Freddie Mac loan the rule is written down. On a Fannie Mae or FHA file I ask the lender's underwriting team up front, before anybody wires anything.

2. Your parent signs the gift letter as an owner of the business. I'll send the form. On a Freddie Mac file it carries the business's address and phone number and says your parent has an ownership interest in it. On an FHA file you sign it too.

3. When you're ready, please provide the company's bank statement for the month the gift leaves, all pages, even if the last page is intentionally left blank, please. Underwriting uses it to see the withdrawal and to confirm the money was there before it moved. We will also need your own statement showing the deposit, all pages.

4. Please provide a document that shows your parent owns the business. An operating agreement, articles of organization that list the members, or a Schedule K-1 showing the ownership percentage are the usual ones. It ties the company's account to the person who signed the letter.

5. The transfer should be one wire for the amount on the gift letter. It goes as a single transfer from the company's account to yours, or to the closing attorney. If it goes to the closing attorney, please keep the wire confirmation.

6. You'll want to leave the rest of your statements alone. The underwriter reads every large deposit on your account, and I wrote up which bank deposits an underwriter asks about.

Mistakes that turn a gift into a paperwork problem

Moving the money to a personal account first. Your dad transfers the gift from the company to his checking, then to you. Nothing about that is forbidden, and on a Fannie Mae or FHA file the lender may ask for it. It does add a second account to document, because his personal statement now shows a large deposit from the business. If that is the route, please do it well before you apply, and keep the statements that show both legs.

A letter signed by the wrong person. The office manager signs the gift letter on company letterhead, and the owner never does. Freddie Mac's text asks for the signature of the Related Person with the ownership interest, so that letter gets sent back.

A wire from the company with no proof of who owns it. The gift letter says "my father, Tom," and the wire confirmation says a company name. Without the ownership document, the underwriter has a payment from a business and a letter from a person, and nothing that connects them. A payment app funded from a card opens the same gap, because the paperwork no longer shows the money leaving the donor's bank account.

An example of how the file reads

The numbers below are made up to show the mechanism, and nothing here is a quote.

You are buying a $420,000 home as your primary residence, putting 10 percent down, with a conventional loan headed to Freddie Mac. Your mother owns 60 percent of the family's plumbing company, an S-corporation, and the company is giving you $38,000 from its operating account.

Purchase price                                   $420,000
Down payment, 10 percent                          $42,000
Closing costs and prepaid items, estimated         $9,500
Total cash needed to close                        $51,500

Gift from your parents' company                   $38,000
From your own savings                             $13,500

The gift part of the file is four pieces of paper. The gift letter, signed by your mother as an owner, with the company's name, mailing address and phone number, the $38,000 figure, the statement that nothing is to be repaid, and her ownership interest. The company's bank statement for the month, showing the $38,000 wire out. Your bank statement, showing the $38,000 wire in. And the company's Schedule K-1 to your mother, showing her 60 percent ownership. Your own statements cover the $13,500.

On a Freddie Mac loan, that is the set. If the same purchase were an FHA loan, the lender would decide up front if it accepts a gift leaving the company's account, and you and your mother would both sign the letter. The K-1 is what lets the underwriter make the "reasonable determination" the handbook asks for.

Your next step

If your parents have offered a gift from their business, the useful first step is seeing your own scenario with the gift inside it. Run your numbers and you will see rates for your scenario, your debt ratio, and closing costs, with no credit pull and no account. When you are ready for a letter a seller will take seriously, getting pre-approved is where the gift letter and the statements get reviewed properly. If you would rather talk it through first, you are welcome to call me.

If the parent giving the gift is also selling you the home, I walk through that in buying a home from family with a gift of equity. If the gift is from their personal savings, the general gift funds article covers that shorter path.

Nothing here is a loan approval, a denial, a commitment to lend, or tax or legal advice. Any tax consequences of a gift from a business, for your parents or for the company, are a question for their accountant. The program your loan is placed with is decided on your own file.

Common questions

Can my parents give me a down payment gift from their business account?

Yes. Freddie Mac's guide, section 5501.4, lists "a business owned by a Related Person" as an acceptable gift donor on a primary residence or second home, with the money transferred directly from the business's account. Fannie Mae's section B3-4.3-04 and FHA's Handbook 4000.1 list relatives and other individuals as donors and do not address a relative's business account, so on those files the lender decides.

Does the gift letter have to be signed by the business or by my parent?

By your parent, as an owner. Freddie Mac requires the letter to be signed by the Related Person who has an ownership interest in the business, and to state that interest along with the business's mailing address and telephone number. On a Fannie Mae or FHA file the letter names your parent as the donor, and FHA also has you sign it.

Can my parents' business give me a gift on an FHA loan?

The handbook lists a Family Member as an acceptable donor and does not mention a business a family member owns, so the lender decides. FHA requires the lender to make a "reasonable determination that the gift funds were not provided by an unacceptable source," which is why the ownership document matters. The gift cannot be your minimum required investment if the business is the seller or benefits from the sale.

Is a gift from my parents' business the same as using my own business funds?

No. When you take money out of a business you own, the underwriter reviews whether the business can keep operating without it. A gift from a business your parents own is documented under the gift rules, with a gift letter, proof of the transfer, and proof of your parent's ownership. Those sections do not call for a liquidity review of the donor's business.