Why do I have to indicate the source of the downpayment on a house?
Posted By Liz Loadholt @ Aug 11th 2020 4:42pm In:
Real Estate Tips
Why do I have to indicate the source of the downpayment on a house?
One might ask why do I have to indicate the source of my down payment money when I am purchasing a home. When applying for a mortgage to purchase a home, the lender will need to know the sources of the down payment, closing costs, earnest money, and often times reserves. You will need to be transparent.
- If you receive money from a family member and put it in your bank account a month before applying for a loan, you might think there will be no issue because the money will already be in your bank account -- wrong.
- The lender will require you to document the source of that money.
- If it came from a family member, most lenders would accept a “gift letter” from the parent.
- The parents may have to verify the source of the money.
- It is best not to add any undocumentable funds to his/her bank account before making a mortgage application.
- It is best always to be transparent about where the funds are coming from in the beginning -- saves heartache later.
- Any money used in the transaction is required to be sourced. That includes down payment, closing costs, reserves, and even anything appearing as a deposit on bank statements in the last 2 months. This requirement applies to 0% down loans, and 50% down – any loan.
- As my trusted Loan officer, Todd Huss of Prosperity Home Mortgage, says, Cash is King in anything in life -- except mortgages.
Are there any resources for money for a down payment?
- In South Carolina, there are SC State Housing Loans that can be used for down payment or closing costs.
- Palmetto Hero’s - $10,000, white it lasts in spring and summer - this is a particular program that only had a certain amount of money
to give our and then the program stops for the year
- The SC State Housing Loan standard program offers $6000
- Both are loans but are 0% interest, second mortgages that are forgiven after the person lives in the home for ten or twenty years, depending on their income level.
- Palmetto Hero’s - $10,000, white it lasts in spring and summer - this is a particular program that only had a certain amount of money
- The only other sources for the down payment are from:
- The borrower.
- A gift from a family member, fiancé, or domestic partner.
- A second mortgage in the case of the SC State Housing.
- Borrowers can liquidate retirement accounts, as well.
- Borrowers can use a HELOC loan (Home Equity Line of Credit) -- this is where they take money out of their current home equity.
- Interested Party Contributions (Seller, Agent, Builder) -- not gifts but can be sources for closing costs to reduce the client’s money in the transaction.
- Borrowers can borrow from the 401k or IRA without withdrawing the money.
Borrowers cannot borrow unsecured money from a friend, company, credit cards, personal loans, or any other source.
Liz Loadholt
Liz@agentownedrealty.com
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