August 2, 2012
A reader recently asked us in the comments section, “I am in the process of selling my home & looking to buy another house.”
“My question is: do I have to have the money for the down payment & any closing costs in my checking or savings account prior to the closing date or can the procedes from the sale of my home be used for that?”
FHA guaranteed home loans usually require a down payment, and the source of that down payment money is strictly regulated by FHA rules. According to HUD 4155.1 Chapter Five, Section B:
“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.
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. ”
So the basic answer is that the borrower must provide funds at closing which are documented. Can the source of those funds come from the sale of personal property? According to FHA loan rules, yes.
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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