FHA Loan Rules For Earnest Money

• exceeds 2% of the sales price, or
• appears excessive based on the borrower’s history of accumulating savings.”

The good news is that earnest money funds don’t ALWAYS require scrutiny–as you can see from the rule above, if your earnest money falls under two percent or doesn’t appear excessive, you may have one less requirement to meet. For earnest money transactions that DO require the lender to look further, FHA loan rules spell out what is necessary to properly document the earnest money. According to Chapter Five, Section B:

“Satisfactory documentation includes

• a copy of the borrower’s cancelled check

• certification from the deposit-holder acknowledging receipt of funds, or

• separate evidence of the source of funds.”

Additionally, Chapter Five says, “Separate evidence includes a verification of deposit (VOD) or bank statement showing that the average balance was sufficient to cover the amount of the earnest money deposit at the time of the deposit.”

These verifications are meant to insure that the borrower has not used non-collateralized loans, credit card cash advances, or other non-approved sources to come up with a down payment or earnest money funds. For more information, speak to a loan officer about the acceptable sources of your down payment or earnest money.

Do you have questions about FHA home loans? Ask us in the comments section.