Fannie Mae & Freddie Mac – Gifts from Employers

Question:

Will Fannie Mae or Freddie Mac allow gifts from the borrower’s employer for a downpayment?

Answer:

The answer is yes and no…… I will explain below. There are very specific guidelines that are required for this type of down payment.
See references for details. The most critical puzzle piece is that this has to be for ANY EMPLOYEE at the company and cannot be just a ‘one-off.’ This must be part of the employer’s written policies.
Technically, the agencies don’t call it a gift from an employer. Instead, it is referred to as Employer Assistance because the donor is not family, etc., and employers are not eligible donors, so it must fall under the terms of Employer Assistance.
More often than not, these are generally structured as a grant. An employer assistance program offers a number of different options, but a true gift is not allowed and would have to be treated as a grant.

References:

Fannie Mae Section B3-4.3-08
The lender must document:

• that the program is an established company program, not just an accommodation developed for an individual employee.
• the dollar amount of the employer’s assistance.
• an unsecured loan from an employer with an award letter or legal agreement from the note holder and must disclose the terms and conditions of the loan.
• the terms of any other employee assistance being offered to the borrower (such as relocation benefits or gifts).
• that the borrower received the employer assistance funds directly from the employer (or through the employer-affiliated credit union).

The employer assistance may be in the form of:

• a grant,
• a direct, fully repayable second mortgage or unsecured loan,
• a forgivable second mortgage or unsecured loan, or
• a deferred-payment second mortgage or unsecured loan.

Freddie Mac Section 5501.4
An Employer Assisted Homeownership (EAH) Benefit may be used as a source of funds to qualify the Borrower for the Mortgage transaction if the terms of the EAH Benefit comply with the following:
The EAH Benefit is provided to an employee from the employer pursuant to an established, ongoing, and documented employer benefit program, provided (i) the employer is not an interested party (as described in Section 5501.5) and (ii) the funds were not obtained from an interested party either directly or through a third party.
The Mortgage is secured by a 1- to 4-unit Primary Residence
Documentation requirements
In addition to the documentation requirements for specific benefit types, the following requirements must be met:

• EAH Benefits must be documented with a copy of the employer benefit program that provides the amount of the benefit and the terms of the program

• Evidence of receipt of the EAH Benefit must be provided (e.g., funds on deposit in Borrower’s account or funds reflected on the Settlement/Closing Disclosure Statement)