No Money For Down Payment? FHA May Be For You

By Connie Sanders in Mortgages on March 18th, 2008

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by Connie Sanders

FHA mortgages provide down payment assistance programs that make this loan very accessable to buyers with little money for a down payment. Even with out the gift or grant programs a buyer can usually get an FHA loan with as little as a 3% towards the loan. This means any money fron the borrower applied toward closing costs or down payment. The loan structuring is more confusing than conventional loans but the interest rate is excellent so it is worth the effort.

A gift for the down payment and closing costs may come from sources such as: a family member, close friend, an employer or labor union, a charity organization, or a governmental agency or public entity that has an FHA-accepted homeownership assistance program.

100% of the funds for down payment and all closing expenses may come from an acceptable gift or grant program. These funds must be documented to show that no repayment is expected and the gift donor will not place a lien on the subject property. Gifts may not be used to meet the borrower’s required 3 months PITI reserves requirement for 3 and 4 unit purchases.

Gifts must not be used to increase a borrower’s assets in order to show reserves remaining after closing that would alter the DU or LP findings from a Refer or Ineligible status to an Approve Eligible or Accept status. The underwriter must review the findings to determine if any gift amount is considered in the reserves reviewed by the system. The gift amount must be deducted from the reserves shown on the findings and the loan must be re-run through the system to provide the true picture of the borrower’s assets and obtain a clear approval.

A gift letter must specifically state there is no repayment and clarify that the gift donor is not tied to the loan transaction in any way.

The transfer of funds from the gift donor to the borrower is required. A lender must document the transfer of funds from the donor’s account to the borrower’s bank account by obtaining a copy of the canceled check or other satisfactory withdrawal document that shows the gift is leaving the donor’s account and is being deposited into the borrower’s account. If the gift amount is being received at the closing, a certified check from the donor and a copy of the withdrawal receipt from the donor’s bank account is required. The closing agent must make copies of these documents to forward to the lender with the closing package.

This is a little tricky. If the donor borrowed funds for the gift he must provide documentation that shows, with out a doubt, that the funds were not borrowed from a party to the transaction. Cash-on-hand from the donor is absolutely not acceptable.

There are many benefits to an FHA loan. Did you know a person can qualify if they are in a chapter 13 bankruptcy? FHA has a terrific no qualifying stream line refinance. FHA is also one of the few remaining lenders that has a program for manufactured homes. The interest rates are excellent.

About the Author:

Connie Sanders is a real advocate for informing the homebuyer about mortgage underwriting guidelines before they apply for a loan. Connie put together a mortgage guidelines web site at www.mortgageunderwriters.com and can be contacted there with any questions you may have.