July 26, 2013
A reader asks, “Can I use money from a residential loan or my thrift savings towards a FHA downpayment and closing costs?”
The rules that cover down payment funds for FHA insured mortgages are found in HUD 4155.1, Chapter Five.
That chapter begins by stating, “Under most FHA programs, the borrower is required to make a minimum downpayment into the transaction of at least 3.5% of the lesser of the appraised value of the property or the sales price. Additionally, the borrower must have sufficient funds to cover borrower-paid closing costs and fees at the time of settlement. Funds used to cover the required minimum downpayment, as well as closing costs and fees, must come from acceptable sources and must be verified and properly documented.”
Specifically, the reader wants to know if a loan and/or thrift savings account funds would be considered “acceptable sources” for the down payment and/or closing costs. Chapter Five states that collateralized loans and thrift savings account funds are indeed acceptable sources of down payment money. When it comes to using funds from a thrift savings plan, FHA loan rules state:
“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included in the underwriting analysis, unless the borrower provides conclusive evidence that a higher percentage may be withdrawn, after subtracting any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.
Notes:
- Redemption evidence is required.
- 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.”
When it comes to using loan funds as a down payment or closing costs, the FHA loan rules state:
“The borrower may obtain a loan for the total required investment, as long as satisfactory evidence is provided that the loan is fully secured by assets such as investment accounts or real property. These assets may include stocks, bonds, and real estate other than the property being purchased.” The loans cannot be cash advances on credit cards, “payday loans”, etc.
Do you have questions about FHA loan rules? Ask us in the comments section.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
Browse by Date: