July 13, 2022
First-time home buyers looking for real estate to buy with an FHA loan may be intimidated by the notion of saving up for and making any kind of down payment, let alone a percentage of the appraised value of the home.
But it’s important to remember that borrowers have options with FHA mortgage loans that can help offset the down payment. Did you know that just over a quarter of all FHA loans at one time featured parental contributions toward the down payment?
That information is according to the Wall Street Journal, which reports some 26% of the FHA loan transactions included financial help from parents–WSJ calls it “The Bank Of Mom And Dad” and it can be a powerful factor in buying a first home.
But some first-time home buyers aren’t happy about having to ask their relatives for loans-and that is where down payment gifts come in; you don’t have to borrow a large amount of money from your parents if they offer a bona fide gift of down payment assistance (which must meet FHA and lender standards).
But if your parents are willing to offer more in the form of a loan why wouldn’t some real estate buyers take them up on the offer? Because you can also get seller-paid closing costs up to six percent of the asking price of the home, which can also help offset your down payment expenses.
Seller-paid closing costs must be negotiated with the seller and some borrowers hate the haggling process and may opt to take their parents’ generosity instead. But it IS an option.
What first-time borrowers need to know about parental assistance for home loans is that if your parents are providing the down payment, those funds must come from approved sources, and will be subject to lender scrutiny.
No cash advances from a credit card, payday loans, or other non-collateralized borrowing is permitted as a source of your down payment regardless of who is providing it.
If your parents are offering you down payment help or a loan to help you get into your first home, discuss this with your loan officer first before any money changes hands to learn how the lender must document the funds and follow FHA loan rules in these cases.
Talk to a participating FHA lender today about your home loan options and your down payment requirements-you’ll be glad you did.
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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