FHA loans only require 3.5% down, there are only two other loan programs on the market requiring less, one is reserved for rural properties while the other is the VA home loan for veterans. Yet FHA loans have no limiting factors and are by far the most popular choice for first time home buyers. Still, you’ll need 3.5% of the sales price plus some funds reserved for closing costs. Your loan officer can provide you with a general estimate of what to expect to come to the closing table with, but there are certain limitations where you can get those funds.
The obvious source is your bank or investment accounts. The funds have to be yours and your name will need to be on the individual bank statement. Be prepared to identify the source of funds, such as regular contributions to a savings account or funds used from your job. If you take home $2,200 on the first and the 15 th , the lender will look for deposits in those amounts on your bank statements. Other deposits without a verified source may not be counted, such as a $500 deposit on the 18 th . Lenders want to make sure your funds aren’t borrowed from someone else or otherwise an unsecured loan.
Gift funds are a legitimate source and can come from a relative, an employer or labor union, a close friend the lender can provide evidence of a close relationship with the borrower or a “documented interest”, a charitable organization and a government entity that provides home owner assistance. No one who has an interest in the selling or buying of the property can provide gift funds at all, such as a real estate agent or closing agent. However, the seller of the property can certainly contribute up to 6.00% of the sales price of the home toward closing costs.
When third parties contribute to closing costs and down payment needs, remember the FHA lender will establish a loan basis on the lower of the sales price or appraised value. A seller contribution of the maximum 6.00% may bring in appraised value problems. If you have any questions about saving up for an FHA loan, give us a call and let us help.