Down Payment Requirements On Home Purchases
This BLOG On Down Payment Requirements On Home Purchases Was Updated On April 21, 2017
There are 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 because these loans are guaranteed by the Department of Veteran Affairs and 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 on home purchases:
- Down Payment
- Closing Costs
The down payment requirements on home purchases is mandatory and sellers concessions cannot be used for down payment.
Amount Of Sellers Concession Allowed
Every loan program has restrictions on the amount of seller concessions allowed.
Here are the maximum amount of seller concessions allowed:
- FHA 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
- HUD requires 3.5% down payment on home purchases on FHA Loans
- Fannie Mae and Freddie Mac requires 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 10% to 20%
- Investment homes require 20% down payment
- Non-QM Loans require 10% 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
Gift Funds For Down Payment
HUD allows gift funds to be used as 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 down payment and/or closing costs on home purchases
- The donor of gift funds needs to sign a gift letter provided by lender where it states that the funds provided to borrower is solely a gift and 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
- Borrower needs to provide the copy of check of gift and bank deposit slip. Updated bank statement after deposit of gift funds needs to be provided to lender
Other Sources For Down Payment
Home buyers can use their 401k and/or retirement account for their down payment on a home purchase. Home buyers can borrow up to 60% of their 401k value and use that towards their home purchase. The amount they borrower from their 401k and/or retirement account will not count towards their debt to income ratios because they are borrowing funds which belong to them.
If you have any questions, please contact Gustan Cho at 262-878-1965 or text Gustan at 262-716-8151 for faster response. The Gustan Cho Team is available 7 days a week, evenings, weekends, and holidays.