July 12, 2013
A reader asks, “I am trying to find the complete FHA list of acceptable sources for down payments. For example, can a client refinance an existing land or home loan as a source of obtaining the necessary funds needed for downpayment?”
FHA loan rules are very specific about acceptable sources of down payment funds. A borrower is required to make a minimum cash investment or down payment of at least 3.5% for a typical new-purchase FHA mortgage. That 3.5% can come from the borrower’s own funds, or be a bona fide gift, or come as the result of the borrower cashing out investments, bonds or other resources.
What exactly IS the down payment a percentage of? How does the borrower know what to expect in this area? The FHA loan rules found in HUD 4155.1 Chapter Five explain. “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.”
What specifically does the FHA say about acceptable sources for this 3.5%? The answer is found in HUD 4155.1 Chapter Five, Section B. Here’s the complete list found of those sources found in Section B:
Earnest money deposit
Savings and checking accounts
Cash saved at home
Cash accumulated with private savings club
Savings bonds
IRAs
401(k) and Keogh accounts
Stocks and Bonds
Thrift Savings Plans
Gift Funds
Sales proceeds
Sale of personal property
Commissions from sale
Trade Equity
Rent Credit
Sweat Equity
Collateralized loans
Grants
Employer’s Guarantee Plans
Employer Assistance Plans
These sources must be verified by the lender and the borrower may be required to furnish documentation or other evidence showing the source of these funds. Chapter Five states, “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.”
FHA loans also have a list of unacceptable sources of down payment money including loans from someone with a financial stake in the outcome of the FHA mortgage loan, and non collateralized loans such as a cash advance on a credit card or a payday loan.
Do you have questions about FHA home loans? 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.
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