July 9, 2020

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FHA Loan Reader Question: Down Payment Funds for FHA Mortgages

A reader asks, “Just for clarification, can tax credits be used in calculating the required down payment? I have always been told they can not. Also if they use a credit card for a deposit it can not be used in the calculation. Is this correct?”

Tax credits are not included in the FHA’s list of acceptable down payment fund sources. Credit cards are also not listed as acceptable sources; while the FHA does permit “collateralized loans” as a down payment source, the credit card would be considered an uncollateralized loan. This is because there is nothing to secure the loan when paying with a credit card.

With a car loan, the car itself acts as collateral, the same as with a mortgage loan where the house itself secures the loan. If there’s no collateral, the loan can’t be used to make a down payment on an FHA home loan. But not all collateralized loans are acceptable for FHA down payment sources; the official word from FHA on loan money as a down payment source includes the following:

“Unacceptable borrowed funds include

  • unsecured signature loans
  • cash advances on credit cards
  • borrowing against household goods and furniture,
  • and other similar unsecured financing.”

Here is a complete list of the FHA’s acceptable down payment fund sources:

Earnest money deposit
Savings and checking accounts
Cash saved at home
Cash saved with a private savings club
Savings bonds
401(k) / Keogh accounts
Thrift Savings Plans
Gift Funds
Sales proceeds
Sale of personal property
Commissions from sale
Trade Equity
Rent Credit
Sweat Equity
Collateralized loans
Grants and loans

Joe Wallace - Staff Writer

By Joe Wallace

May 17, 2012

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.

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