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No Money For Down Payment? FHA May Be For You

Mar 18, 2008
FHA mortgage loans have many options for the homebuyer. One of these oprions is the down payment assistance program that makes this loan very affordable for buyers with no cash. Even with out the gift or grant programs a buyer can usually get an FHA loan with as little as 3% down. This means money applied to closing costs or down payment. It is a little more confusing to structure this product than conventional loans but the low interest rate makes it worth the effort.

Gifts for both the down payment and the closing expenses may come from acceptable sources such as: family member, close friend, borrower's employer or labor union, a charitable institution, or a governmental agency or public entity that has a FHA-accepted homeownership assistance program.

All of the money for the down payment and closing costs may come from a gift or grant program. The funds must be documented to show that no repayment is required and the donor will not put a lien on the property. The gift may not be used to meet the borrower's 3 months PITI (principle, interest, taxes, and insurance) reserves that are needed if they are purchasing a for 3 and 4 unit property.

Gifts absolutely can not be used to increase the borrower's remaining reserves after closing that could change the Loan Prospector findings from a Refer or Ineligible to an Approve Eligible or Accept status. The underwriter must review the findings to make sure gift money is not used in the calculations of the remaining reserves reviewed by the system. Any gift amount must be deducted from the reserves shown on the findings and the loan must be re-run through loan prospector to provide an accurat calculation of the borrower's assets. Only then can they obtain a clear approval.

An original gift letter is required. The letter must state there is no repayment required and that no gift donor is tied to the loan transaction.

A lender has to document the transfer of funds from the donor's account to the borrower's account. A copy of the canceled check or other satisfactory withdrawal document that shows the gift is leaving the one account and is being deposited into the other is acceptable. If the Money is being received at the closing it must be done with a certified check from the donor and a copy of the withdrawal receipt from the donor's bank account is required. These documents must be forwarded to the lender with the closing package.

If the funds for the gift are borrowed the donor must provide acceptable documentation that verify the funds were not borrowed from any party to the transaction. Cash on hand is not acceptable under any circumstances.

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 educating the consumer about mortgage underwriting guidelines before they apply for a loan. Connie put together a mortgage guidelines web site at http://www.mortgageunderwriters.com and can be reached there with any questions you may have.
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