FHA Rules for Gift Funds and Down Payments
With 2018 just around the corner, new rules and regulations will go into effect that will play a profound role in the number of people who qualify for new home loans from the FHA.
Individuals Must Have Enough Funds to Close
One of the truly impressive things about the FHA is the number of financing options that they have available for individuals who are interested in everything from home improvement loans to purchasing their very first home. What is true in virtually all of these cases, however, is the fact that a person must have a down payment that is at least equal to 3.5% of either the value or purchase price. FHA first time home buyers must have enough money on hand to cover all of the closing costs associated with their loan.
The funds that can be used to cover closing costs and down payment are also required to come from acceptable sources. The lender is responsible for verifying that the funds are available and appropriate before closing.
Some of the funds that are acceptable sources of closing costs and down payments include:
- Funds in an individual checking or savings account
- Earnest money deposited by the borrower
- Cash savings
- Gift funds
- Savings bonds
- Retirement and investment accounts
- Stocks and bonds
- Proceeds from the sale of another home
- Proceeds from the sale of personal property
- Trade equity
- Income from a rental property
- Commissions from a sale
- Certain loans and grants
- Employer assistance plans
- Sweat equity
Some of the most common confusion involves cash savings that an individual has at home. This type of money sometimes referred to as "mattress money." One of the problems with this type of money is that it can be difficult, if not impossible, to trace the funds back to their source. Fortunately, the FHA allows individuals who are able to demonstrate that they have the ability to save money at home to use cash savings to cover closing costs or down payments. Of course, this money must be verified before can actually be used which generally requires an individual to either deposit the money into a bank or allow it to be held by an escrow company.
The FHA does require individuals with cash to provide "satisfactory evidence" that they have the ability to save cash. This involves the borrower explaining in writing how long it took for them to save the cash and how the cash was actually accumulated.