May 14, 2013
New purchase FHA home loans require a “minimum cash investment” of at least 3.5% of the appraised value of the home or the sales price, whichever is lower. But where can this down payment come from?
FHA loan rules require the lender to verify the source of the down payment to insure it comes from what the FHA terms “acceptable sources”.
HUD 4155.1 Chapter Five states, “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.”
Acceptable sources can include savings accounts, grants and collateralized loans, bonds, the money earned from the sale of personal property, rent credits and many others. Investments are also considered an acceptable source. Gift funds are also acceptable, with exceptions as described in Chapter Five:
“The gift donor may not be a person or entity with an interest in the sale of the property, such as
• the seller
• the real estate agent or broker
• the builder, or
• an associated entity.”
When it comes to gift funds, FHA loan rules also state, “Regardless of when gift funds are made available to a borrower, the lender must be able to determine that the gift funds were not provided by an unacceptable source, and were the donor’s own funds. When the transfer occurs at closing, the lender is responsible for verifying that the closing agent received the funds from the donor for the amount of the gift, and that the funds were from an acceptable source.”
As previously mentioned, borrowers can use collateralized loans to make a down payment, but there are limitations–and FHA loan applicant cannot use any loan that does not have collateral securing it such as cash advances on credit cards or loans against household goods or furniture.
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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