Down Payment Requirements On Home Purchases

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This BLOG On Down Payment Requirements On Home Purchases Was Updated And Published On February 2nd, 2020

Down Payment Requirements

There is a minimum down payment requirement on home purchase on most loan programs.

The only two loan programs that do not require down payment on home purchase are the following:

  • VA Loans
  • USDA Loans

VA Loans and USDA Loans do not require any down payment requirements on home purchases. This is because these loans are guaranteed by the Department of Veteran Affairs and the U.S. Department of Agriculture Rural Development.

Can Sellers Concessions Be Used For Down Payment?

Sellers concession is when a home seller will offer to pay for the home buyer’s closing costs.

There are two types of costs involved in home purchases:

  • Down Payment
  • Closing Costs

The down payment requirements on home purchases are mandatory and sellers concessions cannot be used for the down payment.

Amount Of Sellers Concession Allowed

What is the number of seller's licenses allowed?

Every loan program has restrictions on the amount of seller concessions allowed.

Here are the maximum amount of seller concessions allowed:

  • HUD allows up to 6% of sellers concession
  • VA Loans allow up to 4%
  • USDA Loans allow up to 6%

Fannie Mae and Freddie Mac Allow 3% sellers concession for owner-occupied and second homes and 2% for investment homes.

Here are the down payment requirement on home purchases

Every loan program has its own down payment requirements on home purchases:

  • HUD requires 3.5% down payment on home purchases on FHA Loans
  • Fannie Mae and Freddie Mac require 3% to 5% down payment on Conventional Loans
  • USDA and VA does not have any down payment requirements on home purchases
  • Jumbo mortgage down payment requirements vary from 5% to 20%
  • Investment homes require 20% down payment
  • Non-QM Loans require 5% to 20% down payment
  • Down payment on bank statement loans require 20% down payment
  • Condotel loans require 25% down
  • Non-Warrantable Condos require 20% down
  • Fix and Flip Loans require 15% down and 10% down on rehab amount

Down Payment Requirements From Gift Funds

What are the gift funds for advance payments for buying a home

HUD allows gift funds to be used as a down payment on home purchases.

  • However, gift funds are not viewed favorably by lenders and the Automated Underwriting System
  • Gift funds can be from family members and/or relatives of borrowers and employers

For home buyers who are dependent on gift funds, here is how gift funds on home purchases work:

  • 100% of gift funds can be used for the down payment and/or closing costs on home purchases
  • The donor of gift funds needs to sign a gift letter provided by the lender
  • Gift Letter needs to state funds provided to the borrower is solely a gift
  • The gift is not a loan and that it will not be paid back
  • The donor of gift funds needs to provide 30 days bank statement reflecting that the gifted funds are seasoned for at least 30 days 
  • The borrower needs to provide the copy of check of gift and bank deposit slip
  • Updated bank statement after the deposit of gift funds needs to be provided to the lender

Down Payment Requirements From Other Sources

Homebuyers can use their 401k and/or retirement account for their down payment on a home purchase. Homebuyers can borrow up to 60% of their 401k value and use that towards their home purchase. The amount they borrowed from their 401k and/or retirement account will not count towards their debt to income ratios because they are borrowing funds that belong to them.

If you have any questions, please contact us at Gustan Cho Associates at 262-716-8151 or text 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.

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