A home purchase requires a buyer to invest some amount of money in their own real estate transaction – in one way or another. The required monies for down payments differ and are contingent upon the selected program. Is every down payment source acceptable? Let’s check it out!
The Borrower’s Assets – Bank Accounts? Acceptable
It is perfectly acceptable to use your own money as a down payment for a real estate purchase. In fact, this is the preferred source as it is easily verifiable. A lender typically verifies the existence of your funds by reviewing a few months of consecutive statements. Be careful, though, as the lender reviews your bank statement they just might discover other significant deposits or withdraws. If this happens, the lender will require the borrower to document the recently discovered deposits or withdraws. Generally, speaking moving your funds during a mortgage process requires a flawless paper trail, and could hinder your loan process.
Stocks, Bonds, Mutual Funds, Retirement Accounts? Acceptable.
If you plan to use non-liquid assets, it is noted that it is an acceptable source. The tricky part with this source is determining an accurate market value before the asset has been fully liquidated. You may be asked to wait until the transaction has completed, which could slow down your approval process.
Gift Funds? Acceptable
Gifts may be given by your parents or other family members. The existence of the gift will mandate that the gift donor document this source of funds with a legitimate paper trail. Additionally, most lenders require that the donor and the borrower execute a “gift letter.” A Gift letter denotes the relationship of the borrower to the donor, their contact information, the property address, the gift amount and source. A gift letter fully declares that the ‘gift money’ is NOT a loan and therefore, it is not required to be repaid, ever.
An Inheritance? Acceptable
An inheritance is an acceptable down payment source, even if the money has not yet hit your bank account. Remember these monies related to the inheritance need to be appropriately verified.
Borrowing From Your 401K? Acceptable
Retirement plans typically permit employees to borrower a portion of their vested 401K portfolio balance, especially if the funds will be used as a down payment for a home purchase. The terms of the repayment of the 401K must be disclosed as the monthly payment must be accounted for when underwriting. Be aware that any withdraws from a 401K may include tax penalties that you should first consult with your accountant.
A Ten Pound Bag of $20 bills? Unacceptable
Cash is impossible to verify and the truth is it is viewed as a red-flag. Large amounts of cash (like this $90,800 bag of cash) are often the result of questionable financial operations. As such, they are viewed as highly suspicious, and we caution against using this source.
At Morgan Home Funding, we understand that financial situations, credit scores, and other financially-related things can vary … That is why we employ a flexible, person-centric approach to each individual client who comes for our fiscal help and can walk you through each step of the loan process to eliminate any confusion or feelings of being overwhelmed.
Don’t hesitate to contact us today with any questions or to get the mortgage process started!