October 17, 2023
Looking for a home to buy with an FHA mortgage? Planning and saving for the down payment or planning to have one provided for you (using approved sources ) is a big part of the early stages of your home loan process.
You aren’t alone in this journey. You may qualify for help from a local down payment assistance program that meets FHA standards. You can also get down payment gift funds from friends and family.
Accept a down payment gift before your closing date, and you have some steps to take before you pay the money. FHA loan rules, like many other home loan programs, have rules that govern the down payment.
FHA Down Payments Are Regulated
Your down payment is regulated by federal law to prevent a lender or seller from taking advantage of you, the borrower. That’s a big reason why the seller cannot assist you directly with a down payment. Your lender can’t give you a down payment grant for an FHA loan, either.
Why you can’t use a payday loan or credit card cash advance to make your minimum 3.5% FHA home loan down payment? Because in part, doing so puts the borrower on a debt “treadmill,” and that’s to be avoided ahead of a major investment like a mortgage.
Down Payment Documentation
You must provide written documentation for down payment funds from any third-party source. Your lender requires documentation for both borrower-sourced down payment money and cash from elsewhere.
The official website of the credit agency Experian notes, “Lenders require seasoning of large portions of your down payment to avoid potential fraud and the use of funds from criminal activities to make home purchases.”
A home loan lender may ask whether the money has been seasoned, resting in your bank account for 60 days or more. Your participating FHA lender wants to know you can afford the loan and will be able to realistically budget for the monthly payments.
How Long Have You Had Your Down Payment Money?
Borrowers with down payment money in an account for longer than 60 days may find the FHA lender may be more interested in a large lump sum in your account a few weeks or months before the closing date.
If a lot of money suddenly appears in your bank account as the lender is making her evaluation, there is a need to know the origin of those funds.
Experian.com states,“If gift money isn’t in your possession long enough to be seasoned”, the lender should ask you for a gift letter “typically signed by both the gift giver and you as the recipient and states there is no expectation of repayment.”
Why Declare A Down Payment Gift or Loan?
Any down payment help offered as a loan, and not a gift, will be added to the borrower’s debt-to-income ratio by the lender. That could force new loan approval calculations based on the new debt amount. If you are already worried you have too much debt, you likely won’t want to consider accepting a down payment loan.
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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