Great question. What can you use for your down payment if you need down payment help? Largely this depends on what type of mortgage loan program you are using to purchase your new home. Are you buying a home using an FHA home loan, or a Fannie Mae conventional mortgage such as the HomePath Mortgage Program? You may be using a VA loan or a USDA Rural Development Mortgage to buy a home. With each of these, the rules are a little different.
Additionally, if you are using a first time home buyer program through your state housing authority or state housing agency their requirements for your down payment may be spelled out a little differently than a comparable regular home purchase loan program. Some mortgage loan programs require you to have $100 of your own money with little focus on how you get the rest of the money. Others do not want you to have too much of your own money where they cap your bank account at $1000.
As you apply for a mortgage make sure you cover your down payment questions with your loan officer or housing counselor very carefully. You do not want any mistakes.
According to FHA, you must have 3.5% of the home purchase price for down payment, acceptable sources of down payment are the following:
- Cash in your bank account that has been there at least 60 days. The underwriter does not want to see any large deposits into your account when they look at your last few months of bank statements. If there are some, be prepared to document where the money came from. During the spring a common large deposit is a tax refund check. You can prove this by submitting your tax return for that year.
- A gift from a family member or close relative to cover the full 3.5%. Make sure that this is a gift and not a loan.
- Government down payment assistance from any Federal, State, and Local Governmental Agencies and Government Approved Non Profit Organizations
- FHA approved Non Profit Organizations such as Neighborhood Housing Services, CCCS – Consumer Credit Counseling Services, Council of Governments, Community Services, Accorn Housing Services and many other community development organizations.
- Money from an employer in the form of an employer/employee contribution
- Money borrower from a retirement fund such as a 401K or IRA.
- Money borrower against real collateral such as another home, or an automobile.
Sources of Down Payment That You Cannot Use
- Money borrowed on a credit card
- Money borrowed from a friend
- Mattress money – unless you can provide proof of where the funds came from
- Money borrowed from a family member or relative – the money from a relative must be in the form of a gift as previously stated
The previously listed sources of money are specifically listed for FHA. However, if you are looking for a conventional mortgage through Fannie mae or Freddie Mac then this list will apply in some way. Make sure you speak to your loan officer carefully about your down payment options if you plan to get help coming up with your down payment.
For VA and USDA Rural Housing loans, down payments are usually not required. Home sellers may contribute up to 6% of the home’s sales price to your closing costs. So the rules for these loans are very flexible and leave the door wide open for down payment options.
Hopefully you now have an idea of what kind of money sources you can use for your down payment.