Why do I have to indicate the source of the downpayment on a house?

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. 

1. 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.
2. The lender will require you to document the source of that money.
   1.  If it came from a family member, most lenders would accept a “gift letter” from the parent.
   2. The parents may have to verify the source of the money.
3.  It is best not to add any undocumentable funds to his/her bank account before making a mortgage application.
4. It is best always to be transparent about where the funds are coming from in the beginning -- saves heartache later.
5. 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.
6. 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?

1.  In South Carolina, there are SC State Housing Loans that can be used for down payment or closing costs.
   1. 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
   2. The SC State Housing Loan standard program offers $6000
   3. 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.  
2. The only other sources for the down payment are from:
   1. The borrower. 
   2. A gift from a family member, fiancé, or domestic partner.
   3. A second mortgage in the case of the SC State Housing.
   4. Borrowers can liquidate retirement accounts, as well.
   5. Borrowers can use a HELOC loan (Home Equity Line of Credit) -- this is where they take money out of their current home equity.
   6. Interested Party Contributions (Seller, Agent, Builder) -- not gifts but can be sources for closing costs to reduce the client’s money in the transaction.
   7. 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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