November 8, 2010
There is a big learning curve to FHA loans and first time home buyers often don’t realize there are rules that govern practically every step of the process from who can appraise a home for sale to acceptable sources of money for FHA mortgage down payments and earnest money.
FHA requirements include rules on how the buyer can pay down payments and closing costs. Did you know the FHA has a list of acceptable funding sources for the down payment? It’s not possible for the buyer to simply accept money from an outside source such as parents or other relatives and put it towards the down payment.
A gift may be permitted under FHA mortgage loan rules, but it must be properly documented with information including the name and address of the donor and a signed statement showing that no money is owed by the borrower as a result of the gift.
One of the reasons for these rules is spelled out in the FHA Loan Handbook. “…The borrower must have sufficient funds to cover borrower-paid closing costs and fees at the time of settlement. Such funds used to cover the required minimum down payment, as well as closing costs and fees, must come from acceptable sources and must be verified and properly documented.”
The borrower must make a minimum downpayment for most FHA mortgages. That minimum is at least 3.5% of either the sales price of the home or the appraised price, whichever is lowest. That down payment may come from a savings or checking account, a private savings club, an earnest money deposit or any approved investment cashed in for the purpose of making the down payment.
Other acceptable sources include money from Employer Assistance Funds or Employer Guarantee Plans. At one time down payment money could also come from First-Time Homebuyers’ Tax Credits, but at the time of this writing that program has expired with 12/01/2009 listed as the last closing date permitted.
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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