Mortgage Guidelines - Acceptable Down Payment Sources

If you apply for a mortgage when you purchase your next home, there will likely be a required down payment. Depending on the mortgage program that you apply for, the minimum down payment can range anywhere from three to five percent of the purchase price of the house. Although, some mortgage programs allow for gift funds or down payment assistance. These programs typically have minimum credit score standards and income limitations. If you do not qualify for down payment assistance or have a family member to gift you the down payment, you will have to use your own funds. Your lender will review your asset statements for at least the two previous months prior to applying for the mortgage. If there are any large deposits in your asset accounts, they will have to be thoroughly documented to show the source of the funds. If the funds cannot be documented, the lender will not allow them to be used as part of the down payment. In addition, if you have paid off any significant debt within the past sixty days, you will have to show the source of the funds used to pay off the debt. Once again, if any recent deposits cannot be documented as your own funds, the lender may deny the loan.
The following list is a brief review of acceptable sources for the down payment on a mortgage.
• Cash and Unsecured Debt - Any deposits that cannot be documented, originated from cash, or borrowed on unsecured debt, such as: credit cards or personal loans cannot be used towards the purchase of a house.
• Checking and Savings Accounts - Your lender will require and review your last two months checking and savings account statements. If there are any large deposits made on these statements, you will be required to document the source of these funds. Acceptable large deposits include, but are not limited to: paychecks, reimbursements, tax refunds, sale or liquidation of asset accounts, and transfer of funds from one account to another. These large deposits will require a thorough paper trail to document the source of the funds. Unacceptable sources of large deposits include: cash, unsecured loans, and credit card withdrawals.
• Retirement Accounts - If you are using funds from a 401(k) or retirement account as part of your down payment, you will be required to document the withdrawal from the account(s) as well as the deposit into your checking or savings account(s).
• Gifts - Gift funds are allowed on some loan types depending on your credit score. Typically, gifts are only acceptable if they are from a family member. They require a fully completed gift letter that shows the relationship of the donor. The gift letter should also include their contact information and the amount of the gift. The person gifting the monies will have to show their most recent bank statement documenting the withdrawal of the gift funds. In addition, the lender will require a copy of the gift check and a printout of your bank statement showing the deposit and new balance.
• Down Payment Assistance - There are many sources for down payment assistance. Prior to entering into a purchase agreement, it is important to discuss your options with your lender to make sure that you qualify for down payment assistance based on your income and your credit scores.
• Sale of Personal Items - The sale of personal items is usually not an acceptable source for a down payment, unless you can thoroughly document the following. Ownership of the item that you intend to sell for the down payment with an original bill of sale, a copy of the check when you sell the item, and a signed bill of sale which includes the purchaser's contact information.
When applying for a mortgage, there are strict guidelines for documenting the source of the down payment. It is in your best interest to thoroughly discuss all your options and your down payment sources with your lender prior to entering into a purchase agreement.

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