July 23, 2015
A recent reader question in our comments section involved the source of down payment funds. The reader wanted to know if cash saved at home could be used to make an FHA loan down payment. The answer is simple, yet can get more complicated depending on circumstances.
The FHA loan rules state that down payment funds must be verified. The reason for this includes requiring the lender to insure that down payment money does not come from payday loans, credit card cash advances or any other type of “non-collateralized” loan.
FHA loan rules have a list of acceptable sources, which include (but are not limited to) proceeds from the sale of investments, property, bonds, etc. Cash saved at home is acceptable, as are trade equity, rent credit, even gift funds–provided that the gift funds meet specific guidelines established by the FHA. (We’ll cover those guidelines in a future blog post.)
With regard for the cash saved at home issue, FHA loan rules do have a specific set of instructions for the lender. These instructions are found in HUD 4155.1 Chapter Five, which states:
“Borrowers who have saved cash at home, and are able to adequately demonstrate the ability to do so, are permitted to have this money included as an acceptable source of funds to close the mortgage. To include cash saved at home when assessing the borrowers cash assets, the money must be verified, whether deposited in a financial institution, or held by the escrow/title company, and (the) borrower must provide satisfactory evidence of the ability to accumulate such savings.”
Borrowers will need to work closely with the lender to meet the standards set by both the FHA and the financial institution regarding this source of down payment funds. Don’t assume that you can simply bring in the cash you’ve saved–you’ll need to discuss how to proceed with your loan officer.
Do you have questions about FHA home loans, or FHA loan down payments? 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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