Acceptable Sources for Your Mortgage Down Payment
By: Selene Garcia
There are many sources you can use for your down payment. Keep in mind, down payment requirements differ slightly for Fannie Mae, Freddie Mac and FHA (VA loans do not require a down payment).
Most of the down payment sources below are acceptable to all three lenders with just a few differences. Some of these you may know and others may make the difference between being able to purchase now rather than later:
- Keogh Plans
- Trust Accounts
- Cash Value of Life Insurance Policy
- Gifts **Restrictions Apply**
Gifts funds are only accepted from the following sources: Relative, close friend, employer, labor union, charitable organization or a government agency /public entity who provides home ownership assistance. The idea is the person or organization cannot have interest in the sale of property. To clarify, this means any one person who is involved in the sale of the property and stands to gain from the sale is prohibited from offering down payment assistance
This list reflects acceptable down payment sources for Fannie Mae, Freddie Mac and FHA. Now let’s take a look at some specialty down payment allowances:
Fannie Mae and FHA Down Payment
For the purchase of a primary residence only, Fannie Mae and FHA will allow a gift for any and all funds needed to close your purchase. This means you don’t need any of your own money for down payment or closing costs.
FHA Down Payment
In addition to gift funds, FHA will allow you to use cash you have saved at home. Most lenders will not accept cash as there is no way to know the source of the cash. FHA, however, will allow the use of cash, but you must provide a letter explaining how you were able to save the money. Additionally, the amount saved must make sense with regard to your annual salary. For example, if you are making $30,000 per year and have been able to save $100,000 in just a year, FHA will want to know how you were able to save such an amount when your salary is less than half of what was saved.
FHA will also allow you to sell personal property to assist you in gathering money for closing costs or down payment. There are restrictions, for example, you must provide an estimate of the value of those items sold and evidence those items were sold. You should speak with your mortgage professional when selling items to ensure you document to proper information.
Freddie Mac Down Payment
For the purchase of a primary residence Freddie Mac will allow you to use pooled funds as a down payment. To explain, Freddie Mac defines pooled funds as being savings gathered by family members who reside together and who plan to continue to live together in the newly purchased property. There are some guidelines you must follow to document the money and a few letters you will need to write; otherwise, the money you and your family has saved is acceptable.
There are many creative down payment options available; be sure and ask your mortgage professional to explain all of your choices as it may be the difference between buying now or later.