Home Add to Favorite Contact Submit  
             10 August, 2022

Category:  Articles » Real Estate » Home Buyers


Down Payment - What Is Acceptable?

         Views: 2348
2007-08-20 17:30:25     
Article by David Zwierecki

Over the course of the last few years buying a home with zero money down had become increasingly simple and has grown in popularity. However, with the recent mortgage market meltdown, buying a home with no money down is beginning to, and will continue to, become much more difficult. The need for a down payment is going to become much more common once again as lending guidelines are tightening up on high loan to value loans.

So what sources are acceptable to most lenders for down payment funds and what are the guidelines for this down payment money? Usually most lenders want to see adequate funds available for a period of at least 60 days in your account. The most common methods of proof of these funds are through either a Verification of Deposit form or through 2 months of the most recent account statements. Thus, if you have "mattress money," which is money that you do not keep in your bank account or in any other type of account and you just have it sitting around your house you will want to deposit that into a bank account or investment account at least 2 months, but preferably longer, before you are ready to begin searching for a home. The requirement of having this money in your account for at least 60 days before being approved for your home loan is what is known as "seasoning" of your funds. By having the money in your account for a couple of months it shows that you have the ability to put money away, that the money is more likely to be yours and not a personal loan from a friend or family member, and that you have adequate money to use for the down payment of a home. If you are using money that was the result of a large deposit within the past 60 days for your down payment and/or closing costs of your mortgage, then you will need to "source" this large deposit. Sourcing the deposit simply means that the bank or underwriter wants you to show proof of where the money came from and that it came from an acceptable source.

Now that we have touched on sourcing and seasoning of down payment funds, what sources are acceptable to use for your down payment? Generally any funds that come from a checking account, savings account, 401k account, IRA account, money market account, stocks, bonds, mutual funds, certificates of deposit, and just about any other liquid asset account are acceptable, granted they have the 2 months seasoning requirement and there have not been any large deposits made within the last 60 days to cover all or part of your down payment. If you are taking a loan out on a retirement account, then full disclosure of the terms and payment of the loan must be included in your loan package and calculated into your debt to income ratio. Most lenders will only account for 70% of a retirement account since the money is generally deposited pre-tax and usually a early withdrawal penalty is associated with early withdrawal. The sale of personal assets is an acceptable source for down payment funds as long as proof of ownership of the asset can be established, transfer of ownership is proven, receipt for the sale is provided and value of the item can all be proven and provided.

Some other less common sources of a home down payment are borrowed funds secured by an asset, rent credit for option to purchase, credit for the value of the lot (if lot is owned already in regards to a construction loan), bridge or swing loan, cash value of life insurance policy, community pooled savings funds, and individual development accounts from non-profit agencies providing down payment matching programs. Generally non-acceptable sources of down payment funds include credit cards and credit card cash advances, personal loans, signature loans, overdraft protection on checking accounts, and cash on hand, also known as "mattress money." There are exceptions to some of the above down payment sources listed above, however these are all of the most generally accepted guidelines.

The type of financing will change some of these guidelines for what is acceptable and what is not in terms of a down payment. For example subprime lenders will allow different things than conforming and FHA lenders. This article has been based more heavily on Fannie Mae and Freddie Mac lending guidelines more than FHA and/or subprime lending guidelines. Therefore, consult with your mortgage lender about what type of financing you will be obtaining and ask specific questions about what is and is not acceptable. The information listed above will give you a very good idea though as to what is traditionally permitted and what is not.

The author of this article, Dave Zwierecki, is the President of First Security Financial Service and has over 10 years of experience in the credit, mortgage lending, and home improvement fields. He is the owner of http://www.GoFirstSecurity.com and http://www.TheMortgageU.com, which are sites devoted to the education of consumers regarding real estate, mortgage, credit, and home improvement related material.

Specialized in: Down Payment - Acceptable
URL: http://www.themortgageu.com
Print article      Bookmark this page
Related Articles 
How to sell a house to acquire fund for your retirement (Popularity: ): A number of individuals who are retired or are near retirement view their properties as a major spring of funds for their retirement & call them as nest eggs. There are 2 principal methods of employing one's house for this intention; either by the means of a reverse mortgage program, or by sell my house fast. In this editorial, we will discuss on How to sell a house to acquire ...
10 Common Mistakes Made in Purchase of Real Estate (Popularity: ): Purchasing real estate property is a big decision that must be taken with care. However, many people make mistakes when purchasing property. These mistakes are irreversible and can have dire consequences. However, they can be avoided easily by being careful about certain things. Some of the common mistakes people make when purchasing real estate are mentioned below.Mistake 1: Not Taking Help from an Estate AgentMany people avoid taking help from ...
Why Missouri is the Best Place to Buy a Property (Popularity: ): Missouri is a picturesque state, situated in the mid-western part of the United States of America. Land sale in Missouri has always been in demand because people find the place to be abundant in natural beauty. Read this article to find out more about Missouri and why buying a tract of land there can be a smart investment.The state of Missouri is considered to be the ideal place for nature ...
How Home Buyers Can Deal With a Low Appraisal (Popularity: ): Low appraisals is something that home buyers need to deal with, no matter what kind of real estate market the area is currently experiencing. It's something you need to understand so that you'll know how to act when you get a low appraisal. Getting low appraisal can really derail your plans to buy a house. Say for example that you looked through La Jolla homes for sale and decided to ...
Real Estate - Conducting Market Trend Research Before Buying Real Estate Property (Popularity: ): Aside from getting married and having children, buying real estate is probably one of the most important decisions you will ever make. It is definitely the biggest investment you will ever make and it should not be taken lightly. Whether you use an agent or not, you should conduct your own research regarding market trends in the area as well as nationwide. Doing your own homework is especially important now ...

Related Business 
Payment Gateway India -Direcpay (Popularity: ): Direcpay is that the best payment entry supplier in Bharat. You'll be able to obtain services on the cyber web through on-line Mastercard payment. Direcpay has the simplest payment entry integration of merchandise Accounts & e-payment. It additionally provides Merchandiser Services like on-line payment entry that lets customers pay on your website through on-line Mastercard payment.
Payment Processor (Popularity: ): Payment Processor services are necessary for any business engaging in e-commerce or web-based sales. Payment processors are responsible for routing transactions from a website's payment gateway to each credit card company and takes care of the business's fund settlements. Without a payment processor, it would be impossible to accept online credit card payments.
Payment gateway (Popularity: ): MPP Global Solutions are the leading provider of Payment Services and eCommerce Solutions to the Media and Entertainment Industries.With over 11 years' experience providing universal and secure eCommerce Payment Solutions MPP offers a breadth of payment functionality to ensure you are prepared for every eventuality.
Online Payment Gateway: Payment Systems & Merchant Account In India (Popularity: ): Zaakpay is the best payment gateway provider in India. You can pay for services on the net through online credit card payment. Zaakpay has the best payment gateway integration of Merchant Accounts & e-payment. It also provides Merchant Services like online payment gateway that lets customers pay on your site through online credit card payment. Now pay for everything online using Zaakpay's online payment gateway using online credit card payment, ...
123Send (Popularity: ): 123Send are the UK's leading payment services provider, providing card payment processing options, payment terminals and other solutions for retailers and other organisations.
Payment Protection Scotland (Popularity: ): Payment Protection Scotland (PPS) is one of Scotland's most successful financial claims management companies. Payment Protection Scotland specialise in reclaiming mis-sold Payment Protection Insurance (PPI) for our growing number of clients throughout Scotland. Most loans, credit cards and mortgages taken out in the last 10 years will have included Payment Protection Insurance (PPI). This insurance was meant to cover the monthly payments if you were unable to make the repayments ...
Smile Workshop (Popularity: ): SmileWorkshop provides practical, affordable ways to get the care you deserve: flexible payment plans. Let us help you find your smile without the financial worries. We provide extended payment plans, no interest options, and require no down payment.
Payment Protection Partnership Scotland (Popularity: ): The Payment Protection Partnership is a Scottish based company specialising in helping you reclaim compensation for mis-sold Payment Protection Insurance (PPI) from loans or other credit you have taken out in the last ten years.
Internet Payment Exchange, Inc. (Popularity: ): iPayX (Internet Payment Exchange, Inc.) provides payment systems, electronic document delivery, and associated customer service solutions that complement and maximize a company’s internal systems and resources.
Mobile Payment Companies (Popularity: ): Simage is a leading company for Mobile Payment Solutions, mobile payment services and m-commerce solution providers. Digital Security Company for Mobile Communications, Mobile Payment Services, m commerce solution provider.