Sources For Down Payment On Home Purchase
This BLOG On Sources For Down Payment On Home Purchase Was UPDATED On October 11th, 2017
Large deposits as sources for down payment on home purchase
The two things needed on a home purchase are the following:
- Down Payment
- Closing Costs
Both the Sources For Down Payment On Home Purchase and closing costs needs to be verified and needs to come from qualified funds. Closing costs is normally not an issue.
Closing Costs On Home Purchase
Most home buyers do not have to worry about closing costs when they are purchasing a home. Closing costs can be covered in two ways if the borrowers do not have money for closing costs:
- Sellers concessions
- Lender Credit
Sellers are allowed to give sellers concessions towards home buyers closing costs. The amount of sellers concessions depends on the loan program.
The following sellers concessions is permitted:
- FHA allows up to 6% sellers concessions
- USDA permits up to 6% sellers concessions
- VA Loans allows up to 4% sellers concessions
- Fannie Mae and Freddie Mac allows up to 3% sellers concessions on primary owner occupant properties and 2% on investment homes
- Non-QM Loans allows up to 6% sellers concessions
- Jumbo Lenders allow up to 3% in sellers concessions
Lender Credit Towards Buyers Closing Costs
In the event if the home buyer cannot get a sellers concession or may be short of closing costs, the lender can give the borrower a lenders credit towards closing costs. The lender credit is given in lieu of a slightly higher interest rate.
All Funds Needs To Be Verified
All funds that will be used for the down payment and/or closing costs on home purchase needs to be verified funds by the underwriter.
- Deposit that resulted in an increase greater than 25% of the borrower’s gross monthly income; or
- A deposit that is more than 2% of the sales price.
Loan From Member Of Borrowers Family For Down Payment
Gift Funds are allowed on mortgage transactions. FHA allows 100% gifted funds by a family member for a home buyer to use it for down payment and/or closing costs. Here is how gift funds works:
- Gift funds are not viewed favorably
- Gift funds needs to be by a family member
Definition Of Family Member
Family member is anyone who is related to the borrower by law, marriage, or blood.
Here is how Family Member is defined:
- Foster parent and/or grand parent or step parent or step grand parent
- Brother and/or step brother
- Sister and/or step sister
- Adopted children
- Aunt and/or Uncle
Retirement Accounts To Be Used As Sources For Down Payment
Retirement Accounts can be used as verified funds for down payment and closing costs on home purchase.
Here is how it works:
- Borrowers can borrower from the IRA/401K
- Monthly payment on borrowed amount is not included as debt and not calculated in DTI Calculations
- Up to 60% of assets of IRA, Thrift Saving Plans, 401k, and Keogh Accounts may be included in the underwriting analysis and sourced as verified funds
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.
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
Seller And Interested Party Contributions
Seller concessions include, but are not limited to the following:
- Prepayment of the buyer’s property taxes and insurance
- Gifts such as a television set or microwave oven.
- Payment of extra points to provide permanent interest rate buydowns.
- Provision of escrowed funds to provide temporary interest rate buydowns.
- 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
- Unsecured loans.
- Cash advances on credit cards.
- Borrowing against household goods and furniture.
- Other unsecured financing.
Qualifying For Home Loan With Direct Lender With No Lender Overlays
Borrowers who need a direct lender with no lender overlays on government and conventional loans and need to get qualified for a mortgage please contact The Gustan Cho Team at USA Mortgage at 1-800-900-8569 or text us at 262-716-8151 for faster response. We are available 7 days a week, evenings, weekends, and holidays. Or email us at email@example.com.
Gustan Cho NMLS ID # 873293