Sources For Down Payment In Home Purchase Mortgage Loan Process
Large deposits as sources for down payment
If there is a large increase in the borrower’s account or if the account was recently opened, the borrower must provide a credible explanation and documentation to source large deposits for all transactions. A large deposit is considered the lesser of:
1. Deposit that resulted in an increase greater than 25% of the borrower’s gross monthly income; or
2. A deposit that is more than 2% of the sales price.
Loan From Member Of Borrowers Family For Down Payment
A secured or unsecured loan from a family member covering 100% of borrower’s down payment and closing costs is allowed subject to the following
“Family Member” is defined as a child, parent, grandparent, (biological, foster or step), sister, step-sister, brother, step-brother, legally adopted son or daughter, a child who is a member of the borrower’s household due to placement by an authorized agency for legal adoption, aunt, and uncle.
Borrower may not receive cash back at closing (except for documented earnest money).
Loan payment (if applicable) must be included in debt to income ratio.
Loan terms cannot require a balloon payment within the first 5 years.
If the family member borrowed the funds, the initial sources of down payment of the funds cannot be a party with an interest in the transaction. The family member may borrower from a banking affiliate of the lender provided the loan is made under the same terms and conditions available to all customers.
Retirement Accounts To Be Used As Sources For Down Payment
Up to 60% of the value of assets such as Individual Retirement Accounts (IRA), thrift savings plans, 401(k) and Keogh accounts may be included in the underwriting analysis, unless the borrower provides conclusive evidence that a higher percentage may be withdrawn, after subtracting any Federal income tax and withdrawal penalties.
Evidence of liquidation is not required, unless more than 60% of the amount in the account is used.
The portion of the assets not used to meet closing requirements, after adjusting for taxes and penalties may be counted as reserves.
Sale Of Personal Property For Down Payment
Borrower may sell personal property such as cars, recreational vehicles, stamp or coin collections, or baseball collections subject to the following:
Borrower must provide a satisfactory estimate of the value of the items and evidence that the items were sold.
The value estimate may be in the form of:
Published value estimates issued by organizations such as automobile dealers or associations related to the asset type, or
A separate written appraisal by a qualified appraiser with no financial interest in the transaction.
The lower of the estimated value or the actual sales price may be used as assets to close.
Secondary Financing For Down Payment
Secondary financing is permitted to finance closing costs and down payment provided:
The borrower is qualified with the debt as a long term obligation.
The lien is secured by the subject property and subordinate to the first lien.
Down Payment Assistance Programs (DAP) are permitted. Loans with credit score <620 are restricted to a maximum 45% DTI Ratio.
Federal, state, local government, and nonprofit agencies considered instrumentalities of government are allowable sources for providing funds to cover the borrower’s minimum down payment. An FHA approved mortgagee or FHA approved non-profit on behalf of the Government Entity may also provide the funds, as long as the subordinate lien is held by the Government Entity prior to submission of the file for FHA endorsement. Documented evidence that the Government Entity providing the required down payment is a HUD allowable source must be provided, as follows:
If funds are provided prior to or at closing: a gift letter and cancelled check, evidence of wire transfer or other draw request evidencing that the Government Entity had authorization to provide the funds is required as proof of legal enforceable liability or obligation.
If funds are provided before closing: verification of fund transfer is not required if a gift letter and documentation of a legally enforceable liability or obligation is provided.
Secured Loans For Down Payment
Proceeds from a loan secured by financial assets such as stocks, bonds, Certificates of Deposits, or real property may be used for the total required investment. The assets securing the loan may not also be used an asset for qualifying purposes.
Seller And Interested Party Contributions
Contributions by an interested party may not exceed 6% of the properties established reasonable value.
Seller concessions include, but are not limited to the following:
1. Prepayment of the buyer’s property taxes and insurance.
2. Gifts such as a television set or microwave oven.
3. Payment of extra points to provide permanent interest rate buydowns.
4. Provision of escrowed funds to provide temporary interest rate buydowns.
5. Payoff of credit balances or judgments on behalf of the buyer.
Seller concessions do not
include payment of the buyer’s closing costs or payment of points as appropriate to the market.
Funds derived from Premium Pricing are not included in interested party contributions unless the credit exceeds the actual closing costs/prepaids
Unacceptable Sources For Down Payment
1. Unsecured loans.
2. Cash advances on credit cards.
3. Borrowing against household goods and furniture.
4. Other unsecured financing.
Gustan Cho NMLS ID # 873293
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