Down Payment And Closing Costs

Gift Funds For Home Down Payment

Gustan Cho Associates

If you are going for a FHA loan,  you will need a 3.5% down payment and closing costs for your home purchase.  You need to show that you have 3.5% down payment in your bank account and that amount needs to be sourced.  By being sourced, it means that either those funds needs to be seasoned in your bank account for at least 60 days or if not, any large or irregular deposits made to your account needs to be sourced.  For example, if your made a $5,000 large deposit in your bank account from a sale of a vehicle in the past 60 days and you need to use that $5,000 towards the down payment or closing costs of your home purchase, you need to provide the mortgage loan underwriter with the copy of the bill of sale, copy of the check, and copy of the deposit slip along with the title of the vehicle.  If you cannot provide any documentation and just made the $5,000 irregular large deposit with cash, those funds cannot be sourced and cannot be used as the down payment or closing costs of your home purchase.  Any irregular deposits of $200 and larger needs to be sourced if you want to use it towards seasoned funds towards your down payment on your home purchase.  If you are one of those folks who have mattress money ( cash ) in your safe or safe deposit box, I strongly recommend that you make that cash deposit in your bank account as soon as possible and let that cash season in your bank account for at least 60 days if you need to use that for your down payment.

FHA Allows Gift Funds From Family Member Or Relative For Down Payment

FHA allows home buyers to get 100% gift funds from a family member and/or relative to be used towards their down payment on their home purchase.  However, a gift letter needs to be signed by the donor stating that the gift funds are only a gift and not a loan and the gift funds will not be paid back after closing.  The gift funds donor also needs to provide 30 days of bank statements showing that the gift funds has been seasoned in the donor’s account for the past 30 days.  If the donor’s account had a large irregular cash deposit of the gift amount in the past 30 days and that deposit cannot be sourced, the gift funds cannot be used.  A copy of the canceled check needs to be provided by the gift recipient and the bank statements from both parties needs to be provided: gift funds leaving the donor’s account into the recipient’s bank account.  If the gift funds was a wire transfer, then supporting documents of the wire transfer needs to be provided.

Automated Underwriting System ( AUS )

Automated Underwriting Systems do like gift funds when you run the mortgage application of the mortgage applicant.  Automated Underwriting Systems like the mortgage loan applicant to have their own funds and not gift funds.  A borrower showing that they have their own down payment shows more strength than those who receive gift funds for down payment.  A mortgage loan applicant may get an approve/eligible per DU FINDINGS or LP FINDINGS with having their own funds for the down payment but if you enter the down payment source as gift funds, you may get a refer/eligible per DU FINDINGS or LP FINDINGS.  This is a problem with mortgage loan applicants with low credit scores and high debt to income ratios where they get an approve/eligible per DU FINDINGS on the initial mortgage application process and towards the end of the mortgage loan approval process they are short of funds to close and need to get gift funds.  Mortgage lenders re-run automated underwriting system findings throughout the mortgage approval process when there are change of circumstances.  If a mortgage loan applicant gets a referred/eligible per automated findings, then the file needs to be manually underwritten or the mortgage lender needs to play around with the AUS to get an approve/eligible per automated findings in order for the mortgage approval process to proceed.

Case Scenarios Where Gift Donor Doesn’t Want To Provide Bank Statements

There are case scenarios where family members or relatives want to help the home buyer with the down payment by providing gift funds but are adamant that they do not want to provide their bank statements due to privacy issues.  This is very common, unfortunately, if the donor of the gift funds does not provide the 30 days of the donor’s bank statement, the gift funds is of no use.  Mortgage guidelines require that the donor’s gift funds needs to be seasoned in the donor’s bank account for at least 30 days and the only way of proving that is by providing 30 days of bank statements.

Closing Costs On Home Purchase

On every home purchase, there are closing costs the home buyer is responsible for.  Closing costs includes tax stamps, transfer stamps, title charges, attorneys fees, appraisal fees, pre-paids which are escrows, one year homeowners insurance, flood insurance, etc.  Home buyers who barely have enough funds for the down payment can get their closing costs covered by requesting a sellers concession towards a home buyers closing costs.  FHA allows up to a maximum of 6% sellers concessions from the home seller to cover the home buyer’s closing costs.  Conventional loan programs allow up to 3% sellers concessions on primary and second homes and 2% for investment properties.  USDA loan programs allow up to 6% sellers concessions and VA loans allow a maximum of 4% sellers concession towards a home buyer’s closing costs.  Most jumbo mortgage loan programs allow up to 3% sellers concessions.  You cannot have a sellers concession overage.  If there is a sellers concession overage, then the sellers concession overage needs to go back to the home seller.  The home seller cannot give a sellers concession kick back to the home buyer.

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The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

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