February 20, 2020

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FHA Home Loan Down Payment Rules: Cash To Close Sources

FHA Home Loan Down Payment Rules: Cash To Close Sources

FHA home loan down payment rules include requirements for the sourcing of funds used to make that down payment and/or provide cash to close the deal.

Down payment funds and sources of cash to close must be properly documented by the lender to insure the cash does not come from unacceptable sources such as non-collateralized loans (payday loans, credit card cash advances, etc.) or in the form of “gift funds” that are not really gifts but have an expectation of repayment.

When discussing the permitted sourcing of FHA home loan down payments or cash to close, many borrowers want to know if certain kinds of sources are acceptable to the lender.

That can include proceeds from the trade-in of a manufactured home, the proceeds from the sale of real estate, or the proceeds from the sale of private property.

What do the FHA home loan rules say about such transactions and how such funds can be used? The answer is in HUD 4000.1, which addresses a variety of such sources.

Proceeds From The Trade-In Of Manufactured Housing

HUD 4000.1 says of these transactions, “Trade-In of Manufactured Housing refers to the Borrower’s sale or trade-in of another Manufactured Home that is not considered real estate to a Manufactured Housing dealer or an independent third party. “

The net proceeds of such a trade-in may be used at closing time when purchasing a home with an FHA mortgage, but no cash back to the borrower is permitted from the dealer or athird party to the transaction. The lender will be required to obtain documentation showing the trade-in, the value of the property traded, etc.

Proceeds From The Sale Of Real Estate

Cash proceeds from a real estate sale can be used as part of your down payment or other closing costs but the lender is required to “document the actual sale and the Net Sale Proceeds by obtaining a fully executed Closing Disclosure or similar legal document” according to HUD 4000.1, which adds:

“The Mortgagee must also verify and document that the transaction was arms- length, and that the Borrower is entitled to the Net Sale Proceeds. “

Proceeds From The Sale Of Personal Property

Money from the sale of personal property can be used for your FHA home loan closing costs and down payment if the following criteria can be met.

  1. The lender requires a “satisfactory estimate” for the value of goods sold;
  2. The lender needs to have documentation of the value of the goods;
  3. A bill of sale is required;
  4. The lender needs copies of your receipt;
  5. The lender needs documentation of the deposit of sale proceeds.

The estimate can take the form of “a published value estimate issued by organizations such as automobile dealers, philatelic or numismatic associations, or a separate written appraisal by a qualified Appraiser with no financial interest in the mortgage transaction” according to HUD 4000.1.

Bruce Reichstein - Staff Writer

By Bruce Reichstein

July 31, 2019

Bruce Reichstein has spent over three decades as an experienced FHA and VA home loan mortgage banker and underwriter where he was responsible for funding “Billions” in government backed mortgage loans. He is the Managing Editor for FHANewsblog.com where he educates homeowners on the specific guidelines for obtaining FHA guaranteed home loans.

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