Down Payment Mortgage Guidelines On Home Purchase


Down Payment Mortgage Guidelines On Home Purchase

This BLOG On Down Payment Mortgage Guidelines On Home Purchase Was UPDATED On May 21st, 2018

Two types of costs required for a home purchase is a down payment and closing costs for home buyers. There are Down Payment Mortgage Guidelines for home buyers. Down Payment Mortgage Guidelines depends on each individual mortgage programs:

  • Home buyers do not have to worry about closing costs
  • This is because buyers can get a sellers concession from a home seller to cover most or all of home purchase closing costs
  • Also, a home buyer can get a lenders credit towards a home buyer’s closing costs if they are short on closing costs
  • For a slightly higher mortgage rate, lenders can extend borrowers credit to cover the home buyer’s closing costs
  • However, down payment is a different story
  • Unless getting approved for a VA loan and/or USDA loan, home buyers will need a down payment for a home purchase
  • VA loan programs and USDA loan programs do not require down payments
  • Minimum down payment requirements for conventional loans is 5% down payment
  • Fannie Mae just launched a 3% down payment for first time home buyers
  • The Federal Housing Administration requires 3.5% down payment on FHA Loans
  • Borrowers need credit scores of 580 or higher
  • Borrowers with credit scores of under 580 need a 10% down payment to qualify for FHA Home loans
  • Reason lenders require down payments is because they want home buyers to have skin in the game
  • If buyer does not put any money down and when things go bad for them financially, it is easy for them just to pack up and move on
  • However, if a home buyer has money of his own as a down payment, they will not want to lose it and will do everything possible to save their home or try to sell his home in order to get equity back

Advice On Coming Up With Down Payment For Home Purchase

Down Payment Mortgage Guidelines state that home buyers need to come up with down payment. Closing costs can be covered by sellers with sellers concessions or lenders with lender credit. Thousands of folks are able to afford a home purchase and its monthly housing payments. However, lack the down payment to go from a renter to a homeowner may be a hurdle:

  • No matter how much these folks make, they have a hard time saving for a down payment for a home purchase
  • Fortunately, there are ways of coming up with a down payment if they are creative
  • We will cover ways of coming up with a down payment for home buyers on this article

Gift Funds Are Allowed

Both conventional loan programs and FHA loan programs allow for gift funds from a family member. Relatives can gift buyers down payment on a home purchase per Down Payment Mortgage Guidelines.

  • FHA allows that a family member and/or relative of the home buyer to gift 100% of the down payment for a home purchase
  • Conventional loan programs allows a percentage of the down payment to be gifted by a family member and/or relative
  • Any gift for conventional loan programs that is under 20% down payment is allowed
  • But 3% of the down payment needs to come from the home buyer’s own funds
  • A gift letter needs to be signed and dated by the donor
  • Gift Letter needs to state gift funds is not a loan and does not need to be paid back
  • 30 days of bank statements is required by the donor of the gift showing that the gift funds has been seasoned
  • The funds leaving the donor’s account and deposited into the recipient account is required
  • Cash gift funds is not allowed
  • Any cash funds cannot be sourced and does not exist nor count in the mortgage industry

Selling Large Ticket Items 

Other ways of coming up for down payment for a home purchase is to sell large ticket items.

  • Borrowers can sell a car, boat, jet skis, jewelry, or other large ticket items and use those proceeds towards down payment as long as it is sold
  • Cannot sell a high ticket item on eBay and get cash for it and use that towards down payment
  • All high ticket items sold needs to be documented
  • Cash deposits cannot be sourced
  • Therefore, cannot be used towards down payment unless it has been seasoned in bank account for 60 days
  • For example, here is case scenario:
    • borrower has boat they are selling
    • get the payment with a check and/or cashier’s check
    • make a copy of the check and/or cashier’s check
    • get a copy of the bill of sale
    • get a copy of the title transfer
    • get a copy of the deposit slip
  • Then this transaction is sourced and can be used towards down payment
  • Also take photo of the high ticket item, copy of ads, and any and all documentation pertaining to the transaction

Using IRA As Source For Down Payment For Home Purchase

Many folks do not realize that they can use their IRA and/or 401k retirement account towards the down payment of their home purchase.

  • If willing to tap into retirement account to be a homeowner and exhaust part of retirement funds, this can be an option
  • Taxable distributions from IRA may be exempt from cashing in IRA before being 59 1/2 years old from the 10% penalty requirement, not taxes, as long as they are a first time home buyer per IRS code
  • As long as home buyer did not have a interest in a principal home during a 2 year period from the date of acquisition of a home
  • A home buyer may still be eligible to take money out of his or her IRA even if they were previous homeowners but not recent homeowners in the past 2 years
  • Check with IRA account executive and/or accountant on this
  • The exemption and no penalty distribution is capped at $10,000 per person who is qualified which included both home buyers, husband and wife as long as they are first time home buyers
  • Before borrowers act on this, make sure to thoroughly review IRA statement and terms of agreement and consult with a professional to make sure

Many home buyers who have 401k accounts can borrow against their 401k via the 401k plan adminstrator and pay themselves back instead of doing a withdrawal against their 401k.  Those borrowing against their 401k retirement account plan often times will help the borrower exempt from tax penalties on the withdrawal of the funds.

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