Down Payment For Home Purchase Requirements

This BLOG On Down Payment For Home Purchase Requirements Was UPDATED On December 17th, 2018

How much down payment you need to have for your home purchase requirements

Home Buyers who are planning to purchase a home have two types of costs they need to come up with.

  1. Down Payment For Home Purchase Requirements
  2. Closing Costs

Mortgage lenders will require a down payment for home purchases.

  • This is because they want the borrower to have skin in the game
  • Statistics prove that if a homebuyer puts down their hard-earned money, the chances of foreclosure reduces
  • The more down payment a homebuyer puts down on a home purchase the more skin in the game borrowers has and the less risk the lender has

In this article, we will cover the down payment requirements on a home purchase.

Loan Programs Offering 100% Financing

The two loan programs that do not require down payment and offer 100% financing are the following:

  1. VA Loans
  2. USDA Loans

Down Payment For Home Purchase Requirements On FHA Loans

For FHA loans, the minimum down payment required is 3.5% of the purchase price.

  • Homebuyers need to prove that they have the down payment via bank statements, investment account, pension or retirement accounts
  • In the event, if they do not have the required down payment, the down payment can be gifted by a family member
  • In the event, if the down payment is gifted, they need to provide the family member’s name and provide the funds being transferred from the donor’s bank account into the receiver’s bank account
  • The donor’s bank statement needs to be submitted to the lender
  • The gift funds must have been seasoned at least 30 days in the donor’s bank account
  • A formal gift letter needs to be signed as well

Conventional Loans Down Payment For Home Purchase Requirements

What are conventional advances for advance payments for buying a home

For conventional loans, there is a 3% minimum down payment loan programs and 5% minimum down payment loan programs.

  • First time home buyers can qualify for Conventional Loans with 3% down payment
  • First time home buyers are those who had no ownership on a home for the past 3 years
  • Seasoned home buyers require 5% down payment on owner occupant homes
  • Second homes require 10% down payment on Conventional Loans
  • Conventional loans generally have higher mortgage rates than FHA insured mortgage loans
  • Private Mortgage Insurance is required on conventional loans with less than 20% equity
  • Similar to FHA loans, the down payment needs to be documented
  • If the home buyer does not have enough money for the down payment, the home buyer can receive a gift from a family member for the down payment
  • Like FHA loans, all gifts must be documented and proof needs to be provided by the donor via leaving the donor’s bank account and going into the receiver’s bank account

The donor’s past 30 days bank account need to be provided to prove that the down payment has been seasoned for 30 days.

NON-QM Loans And Bank Statement Mortgage Loans For Self Employed Borrowers

Alternative Financing is back.

  • NON-QM Loans are non-conforming alternative loan programs where there is no waiting period after bankruptcy, foreclosure, deed in lieu of foreclosure, short sale
  • There is no loan limit caps since they do not have to conform to Fannie Mae and/or Freddie Mac Guidelines
  • Bank Statement Mortgage Loans For Self Employed borrowers are mortgage loans that will just go off 24 months averages of the borrower’s bank statements
  • Tax returns are not used so write-offs and deductions do not matter
  • NON-QM and Bank Statement Mortgage Loans require 10% to 20% down payment

Borrowers of NON-QM and Bank Statement Loans for Self Employed Borrowers can get up to 6% in sellers concessions to cover closing costs.

Closing Costs

Besides the down payment, the home buyer needs to come up with third party closing costs. Closing costs are any costs related to closing the home loan.

Here are examples of closing costs:

  • Origination Fees
  • Title Charges
  • Recording Fees
  • Appraisal Fees
  • Pre-Paid
  • Transfer Stamps
  • Attorney’s Fees
  • Appraisal Fees
  • One year homeowners insurance
  • Any other costs involved in closing the home loan
  • Discount Points

Sellers Concessions Versus Down Payment For Home Purchase Requirements

What is the difference between seller's licenses and advance payment for the requirements for buying a home

Sellers Concessions is when a home seller gives a home buyer a monetary credit for closing costs.

  • Each loan program has a cap on the maximum sellers’ concession a home seller is allowed to give a home buyer
  • Sellers concessions can only be used to cover buyer’s closing costs and cannot be used for the down payment

Any overage in sellers concessions needs to go back to the home seller and cannot be given as a kickback to the home buyer.

  • However, closing costs can be provided via the seller’s concession or lender’s credit towards closing costs
  • A seller’s concession towards the buyer’s closing costs is very common
  • With FHA and USDA Loans, the seller can contribute a maximum of 6% of the purchase price towards a buyer’s closing costs which include pre-paid closing costs
  • With conventional loans, the seller can contribute a maximum of 3% of the purchase price towards a buyer’s closing costs for owner occupant homes
  • 2% sellers concessions for investment properties
  • VA Loans allow 4% sellers concessions

Make sure you do not too much closing cost credits because the leftover goes back to the seller and the seller is not allowed to give the buyer the cash difference.

Lender’s Credit Towards Closing Costs

In the event, if the seller is not willing to give the buyer a seller concession and the home buyer does not have enough money to come up with the closing costs, the buyer can request a lender’s credit towards closing costs by accepting a mortgage rate slightly higher.

  • For example, if the borrower has a mortgage rate of 4.0%, the borrower can accept a mortgage rate of 4.25% and get a lender’s credit towards closing costs
  • All in all, the bottom line is that all you need is the minimum down payment to purchase a home
  • Closing costs can be covered either by a sellers concession or a lender credit

This BLOG On Down Payment For Home Purchase Requirements Was UPDATED On December 17th, 2018

Related> Minimum Down Payment On Home Purchase

Related> 2015 Down Payment Guidelines: First Time Home Buyers

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