This BLOG On Down Payment For Home Purchase With FHA Loans Versus Other Loans Was UPDATED And PUBLISHED On September 8th, 2019
With the exception of VA Mortgage Home Loans and USDA Loans, all home loan programs require down payment for a home purchase. FHA is the most popular loan program in the United States due to Down Payment For Home Purchase With FHA Loans is only 3.5%.
All mortgage loans require two things:
- Down Payment: Needs to come from the home buyer
- Closing Costs: Can be covered with sellers concessions and/or lender credit
VA Loans and USDA Loans are the two mortgage loan programs that do not require down payments. However, all mortgage loans have closing costs.
In this article, we will cover and discuss Down Payment For Home Purchase With FHA Loans Versus Other Loans.
Closing Costs On Home Loans
As mentioned, there are two types of costs when buying a home.
- Down Payment on the home purchase
- Closing Costs
The down payment needs to sourced and documented and needs to be verified funds by the home buyer.
Closing Costs can be covered with the following:
Here are examples of closing costs:
- Title Charges
- Appraisal Fees
- Recording Charges
- Pre-Paid which are upfront escrows
- One year homeowners insurance
- Flood Insurance if applicable
- Appraisal Fees
- Attorney’s Fees
- Any other costs associated with the closing of the home loan
Most homebuyers do not have to worry about closing costs.
Down Payment For Home Purchase With FHA Loans
All down payment for home purchase with FHA Loans needs to be documented as follows:
- FHA requires all down payment for home purchase with FHA Loans be documented
- FHA allows down payment for home purchase with FHA Loans to be gifted by family members and/or relatives
The down payment for a home purchase is probably the biggest challenges most first time home buyers face once they decide to become homeowners.
- Many potential first time home buyers’ main concern is how much down payment is needed
- Another concern many first time home buyers have is how much are closing costs
Homebuyers do not need to worry too much about closing costs because there are two ways of not having to come out of pocket for closing costs and prepaid:
- Sellers Concessions
- Lender Credit
Sellers Concessions To Cover Closing Costs
The first way of covering closing costs is to ask for a sellers concession towards the buyers closing costs and prepaid.
- This can easily be done by inflating the purchase price by the closing cost and prepaid amount
- Conventional loans allow up to 3% in sellers concessions on primary owner occupant properties
- 2% sellers concession on investment homes
- FHA and VA Loans allow up to 6% sellers concessions towards buyers closing costs and prepaid
- VA Loans allow up to 4% sellers concessions
Lenders Credit To Cover Closing Costs
The second way of covering closing costs is by lenders credit towards closing costs.
- A lender can cover most of the closing costs in the event home buyers do not get enough sellers concessions
- Lenders give lender credit by giving borrowers a higher mortgage rate in lieu of giving lenders credit towards closing costs and prepaid
- Unfortunately, sellers concessions can only be used for closing costs and no down payment
Down Payment For Home Purchase With FHA Loans
Lenders will only accept sourced down payment funding towards the down payment of the borrowers new home. Cash or mattress money is not allowed as sources for the down payment. All down payment funds must be sourced and verified.
Listed below are acceptable down payment sources to be used towards a residential home purchase.
Down Payment Can Come From Borrowers And Co-Borrowers Bank Accounts:
- Two months, 60 days, of the most recent bank statements, may be used to verify savings and checking accounts information
- Any large deposits over $200 dollars need to be sourced
Cash at hand or in safe deposit box:
- Cash resources are non-existent in the mortgage business
- Under certain circumstances, cash at hand may be used if the borrower can write a detailed letter of explanation on how the cash was accumulated over what period of time
- Also providing supporting documentation like bills of sale or receipts
- This is extremely difficult to be accepted by the mortgage loan underwriter but the borrower can try
IRA & Retirement Accounts:
Lenders will allow up to a 60% value of retirement accounts:
- 401k accounts
- Borrowers are allowed to secure a loan against their retirement accounts
- The right-hand rule is that borrower can borrow the lesser of 60% of their retirement account or $50,000
- In general, borrowers can borrow the lesser of $50,000 or one-half of their retirement plan
Other Liquid Assets
Securities Investment Accounts: Stocks, Bonds, Mutual Funds:
- The lender may use the most recent monthly or quarterly statement provided by the stockbroker or financial institution managing the portfolio to verify the value of stocks and bonds
- The borrower’s actual receipt of funds must be verified and documented
Mortgage lenders will allow government bonds such as the following:
- Municipal Bonds at par price
Gift Funds For Down Payment
Gift funds are allowed for FHA loans:
- As long as there is a gift letter signed by the donor that he or she does not expect any of the gift money back from the person receiving the gift or repayment plan
The person giving the gift needs to be the following people:
- a person who is related to you by blood or marriage
- Current employer or a labor union the mortgage loan borrower belongs to
- A charitable institution like a church or a non-for profit organization
- Local, county, state or federal government institution that has an implemented home buyers program that assists first time home buyers aid
- Or assistant towards their down payment such as providing aid to low to moderate-income families or single parents
Selling Property Or Assets For The Down Payment
Liquidation Of Personal Property:
- Bill of sale is provided is allowed for down payment sourcing
The borrower is allowed to sell personal property and use those funds as a down payment source:
- As long as the bill of sale and copy of the canceled check is provided to the mortgage underwriter
The following are allowed:
- Automobiles and motorcycles as well a boats
- Recreational vehicles and trailers
Proceeds From Sale Of Properties
The proceeds from a real estate sale are allowed:
- As long as the borrower can provide an executed HUD from the sale and bank statements showing the deposit into their accounts
Funds that are collateralized by a secured asset is allowed can be used for the down payment for home purchase with FHA Loans:
- As long as the borrower can provide the contract and agreement
The current employer can help home buyers in the following ways:
- Paying all or part of the employee’s closing costs and prepaid
- Mortgage Insurance Premium
- Down Payment On Home Purchase: Either partial or full down payment
Home Buyers who need to qualify for a mortgage loan with a direct lender with no overlays can contact us at Gustan Cho Associates at 262-716-8151 or text for faster response. Or email us at firstname.lastname@example.org. We are available 7 days a week, evenings, weekends, and holidays.