The down payment is nearly always the biggest hurdle an Orange County First Time Home Buyer has to over come. The down payment can come from several different sources, but buyers need to be careful because there are also sources that are not allowed. Besides actually saving the down payment over a period of time, below is a list of a few of the acceptable down payment sources.
Sources of Down Payment for an FHA Loan
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IRA's, 401K, retirement funds. One of the great things about FHA is that a 401K loan payment is not counted in the borrowers debt to income ratios. It is on a Conventional loan.
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Gift Funds. This typically needs to come from a relative. Gift funds need to be "paper trailed", meaning the lender will need to verify the donor had the funds to give. A copy of the actual cancelled gift check is very helpful, along with the deposit receipt from the borrower.
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Sale of Personal Property. The key is to remember that everything in an FHA transaction needs to be documented. If a borrower is going to sell a car, the lender will need verification that the car was owned by the borrower, and will need verification of how much the car is, or was, worth. Also, the lender will need verification that a sale did occur.
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Commission From Home Sale. If the buyer is a licensed agent, the commission can be used for the down payment and/or closing costs. Also, if the buyers agent is a relative, the agent can "gift" the commission to the borrower which can be used towards the 3.5% minimum down payment.
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Rent Credit. Also known as a "lease option", a portion of the rent paid can be credited towards the down payment. The catch is the amount credited can only be the amount paid above the market rent. For example, if the market rent is $1,500 and the buyer pays $1,800 per month, then $300 per month can be credited towards the down payment.
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Bridal Registry Account. Hey, you never know. Instead of asking for dishes, sheets and towels, a newly married couple can set up a bank account where friends and family can directly deposit a wedding gift of cash. This can add up fast.
The important thing to remember, as mentioned above, is that everything about a loan is going to need to be heavily documented. This is where home buyers can sometimes run into trouble. For example, while "cash" is technically an acceptable source of down payment, it is so difficult to document cash, that buyers who don't like saving their money in a bank account will have a difficult time getting a lender allow it. Also, don't even begin to think you can get away with a credit card advance. The lender will review bank statements and need verification of any unusual deposits shown on the most recent 2 months bank statements.
First time buyers should talk with an Orange County FHA loan officer before even looking at homes. It is important to get Prequalified for a mortgage in order to know what price range to shop for. Payments are different for single family homes versus condo's because of the the Home Owners Dues associated with a condo. By getting your prequalified for an FHA loan ahead of time, you will be well prepared when the time comes to make an offer on a property.
Authored by Tim Storm, an Orange County, CA Loan Officer - Please contact my office at Frost Mortgage Lending Group for more information about an Orange County, CA home loan. 877-786-4243 x 7.
Contact us for your Orange County FHA Mortgage:
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*Licensed by Department of Corporations under the California Residential Mortgage Lending Act. PRMI Branch License 813F487.
