This Article Is About Mortgage Guidelines On Down Payment
With the exception of VA and USDA loans, most mortgage loan programs require a down payment. Not everyone can qualify for a VA loan. Only active and/or retired members who have served in the United States Armed Services with a certificate of eligibility (COE) are eligible to qualify for VA loans. USDA loans are only eligible in areas designated by the USDA Rural Development. USDA loans also have maximum household income caps. Other mortgage loan programs require down payment requirements.
- When a borrower applies for a home loan, he or she completes a mortgage application and lists his or her income, liabilities, and assets
- When a lender underwrites the mortgage loan, he or she will want to see the source of down payment
- If the down payment is not listed in a checking or savings account or other liquid accounts, the lender will want to know where the source of the down payment will be coming from
Minimum Down Payment Requirements On Home Purchases
Every loan program has its own down payment requirements.
- FHA Loans require a 3.5% down payment on home purchases for borrowers with credit scores with at least 580
- Borrowers under 580 scores down to 500 can qualify for FHA Loans but need a 10% down payment
- VA and USDA Loans offers 100% financing so no down payment is required
- Fannie Mae and Freddie Mac require 3% to 5% down payment on Conventional Loans
- NON-QM Loans require a 10% to 20% down payment
- Bank statement loans for self-employed borrowers require a 20% down payment
Gustan Cho Associates offers a 10% down payment NON-QM Jumbo Loans.
Down Payment Needs to be Sourced
Undocumented sources of down payment like cash cannot be counted.
- In the mortgage business, cash does not count
- Many borrowers think that just because they have cash on hand and not in the bank that they will be able to get a cashier’s check and bring that to closing
- If you have undocumented cash, you need to deposit it in your bank account as soon as possible and let it season for at least sixty days
- Any deposits that have been seasoned for sixty days or longer do not require sourcing
- Gift funds for the down payment are allowed
- However, gift funds need to be sourced as well
- Lenders will require 30 days of bank statements from the donor of the gift
If you sell a high ticket item, as long as you can source the transaction with a bill of sale and title, that is considered sourced funds.
Mortgage Guidelines On Down Payment On Un-Sourced Funds Needs
If a mortgage borrower has cash and wants to use that cash towards the down payment.
- Cash needs to be in the borrower’s bank account and seasoned for at least 60 days in order lender to take it into consideration
- There are many folks, especially immigrants, who do not trust banks and keep actual cash
- It is often known as mattress money
- Others in the service and entertainment industry such as bartenders, waiters, waitresses, and hotel workers often receive a portion of their compensation in cash via tips and often do not deposit those proceeds in a bank
- With interest rates in savings/checking accounts being almost zero, they feel more secure saving their cash in a safe deposit box or their own personal safe
Unfortunately, those funds cannot be used towards the down payment:
- This holds true unless it has been seasoned in their bank accounts or investment accounts for a period of 60 days
Mortgage Guidelines On Down Payment Gift Funds
Down payments can be gifted by family members, however, there must be a paper trail and the funds need to be seasoned for at least 30 days.
- Gift Funds can only be used for the down payment with a gift letter and 30 days bank statements from the donor
- Mortgage borrowers can have family members gift them the down payment
- The donor needs to provide the mortgage lender with the last 30 days of the bank statement
- Donor’s bank statements need to show the funds has been seasoned for at least 30 days
- The withdrawal needs to match the deposit from the donor to the recipient
Borrowers either have undocumented cash or who are expecting on receiving a gift for their down payment on their home purchase should consult a mortgage broker/banker as soon as possible.
If you have any questions about the content of this article and/or other mortgage-related topics, please contact us at Gustan Cho Associates at 800-900-8569 or text us for a faster response. Or email us at gcho@gustancho.com. The team at Gustan Cho Associates is available 7 days a week, evenings, weekends, and holidays.
Related> Minimum down payment on a home purchase
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