September 13, 2023
Down payment issues may vary depending on the home loan you select, whether it is an FHA loan, a VA mortgage, or a USDA construction loan, but some things are common for all mortgages where down payment money goes.
Do You Need A Down Payment Gift? Get It In Writing
A participating FHA lender can accept down payment gift funds from a variety of sources. The money can come from family, friends, and employers.
But these gift-givers must also provide a letter detailing where the cash comes from and that it does not come from unapproved sources, which we will explore below.
The down payment gift letter must explain where the money is from, such as cash saved at home, investments that have been cashed in for the gift, or from checking accounts or money market. Also needed in some cases? How long the money has been in the gift giver’s bank account.
Knowing this fact early can help you make better choices in the early stages of your mortgage. You will be better able to anticipate and save up for your mortgage costs, including down payment and closing expenses.
How Much Do You Really Know About Making Your Down Payment?
Some make bad assumptions about the down payment requirement. They assume a down payment can be reduced or offset by closing costs.
These people may assume paying for those in cash rather than financing them would be counted as part of your FHA loan down payment. That is not true.
Ask your participating FHA loan officer about what you need to know about the lender’s practices for accepting the down payment money and its sourcing.
Don’t Assume You Can Use Any Money For Your Down Payment
FHA loan down payment funds must be properly sourced. They can’t come from just any source and the lender must investigate the funds to make sure they come from the right places and people. What does that mean?
FHA loan rules say you can’t accept down payment gift money from people who have a financial interest in the loan.
The seller is allowed to assist you by providing a percentage of closing costs. But the seller is not permitted to give you money for your down payment.
Other Unapproved Sources For FHA Loan Down Payments
People with a financial stake in the outcome of the sale of the property are not the only unallowed sources for FHA loan down payments.
FHA loan rules say a credit card cash advance to pay for it is also unacceptable, and the lender won’t take downpayment money from pink slip or payday loans, and other non-collateralized loans.
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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