March 22, 2013
One of the most commonly asked questions about FHA loans is “How much will my down payment be?” The answer to that question depends on how much your home loan is and whether you’re paying the minimum 3.5% down payment or a larger amount.
Regardless of how much you pay, the FHA has rules about HOW the downpayment is made. Did you know there are “acceptable sources” for down payment funds as well as “unacceptable sources”?
For example, a borrower is free to use money saved in a checking, savings, or investment account. But the borrower cannot use cash advance loans or payday loans to make the down payment. In fact, any “non-collateralized” loan is not an acceptable source of down payment funds.
The FHA rules in these circumstances extends to gift funds, which are acceptable sources of down payment money as long as it is properly documented. The lender will require evidence of gift funds as described in HUD 4155.1 Chapter Five:
“The lender must document any gift funds through a gift letter, signed by the donor and borrower. The gift letter must
–show the donor’s name, address, telephone number
–specify the dollar amount of the gift, and state the nature of the donor’s relationship to the borrower, and that no repayment is required.”
Note the last line–the gift funds must be a legitimate gift, not a loan disguised as one.
When looking at gift funds as a source of your down payment, the FHA says that charitable organizations may–under some circumstances–offer down payment assistance. That help is subject to restrictions, some of which are described in Chapter Five:
“FHA does not “approve” downpayment assistance programs administered by charitable organizations, such as nonprofits. FHA also does not allow nonprofit entities to provide gifts to pay off:
–installment loans
–credit cards
–collections
–judgments
–liens, and
–similar debts.
Lenders must ensure that a gift provided by a charitable organization meets the appropriate FHA requirements, and that the transfer of funds is properly documented.”
For more information on acceptable sources of down payment funds, speak to a loan officer or contact the FHA directly at 1-800 CALL FHA.
Do you have questions about FHA 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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