October 5, 2016
In our last blog post we discussed FHA loan closing costs and down payments-specifically the rules found in HUD 4000.1 that governs the sources of the funds for cash to close (down payments and closing costs). The lender is required to verify the source of all funds for down payments and closing costs, and the procedure can vary depending on the source of the funds, lender standards, state law, etc.
Last time we examined the rules for funds that come from savings and checking accounts, but these aren’t the only types of sourcing options. For example, cash to close may come from investments such as stocks or bonds, or money saved up in private savings clubs.
HUD 4000.1 instructs the lender on how to proceed with these types of sources. For stocks and bonds, we learn:
“The Mortgagee must determine the value of the stocks and bonds from the most recent monthly or quarterly statement. If the stocks and bonds are not held in a brokerage account, the Mortgagee must determine the current value of the stocks and bonds through third party verification.”
What does the FHA loan rulebook say about using savings bonds as a source of cash to close? On page 217 of HUD 4000.1 we learn, “Government-issued savings bonds are valued at the original purchase price, unless the Mortgagee verifies and documents that the bonds are eligible for redemption when cash to close is calculated.”
The lender is required to get specific documentation. “The Mortgagee must verify and document the existence of the Borrowers stocks and bonds by obtaining brokerage statement(s) for each account for the most recent two months. Evidence of liquidation is not required. For stocks and bonds not held in a brokerage account the Mortgagee must obtain a copy of each stock or bond certificate.”
Then there are the rules governing a borrower’s cash to close when it comes via a private savings club, which HUD 4000.1 defines thusly:
“Private Savings Club refers to a non-traditional method of saving by making deposits into a member-managed resource pool.”
What are the rules for this type of source of cash to close? “The Mortgagee may consider Private Savings Club funds that are distributed to and received by the Borrower as an acceptable source of funds. The Mortgagee must verify and document the establishment and duration of the club, and the Borrowers receipt of funds from the club. The Mortgagee must also determine that the received funds were reasonably accumulated, and not borrowed.”
As with stocks and bonds, the lender is required to get specific documentation. Page 218 of HUD 4000.1 instructs the lender, “The Mortgagee must obtain the clubs account ledgers and receipts, and a verification from the club treasurer that the club is still active.”
Lender standards may apply above and beyond these rules, so if you have questions about specific needs regarding these sources of cash to close, it’s best to have a conversation with your loan officer to see what may apply at that financial institution.
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.
Browse by Date: