When you meet with your clients, the conversation usually gets around to the topic of the down payment and closing costs—how much and where’s it coming from.
Do you know what’s OKAY and what’s not okay? While not everything is covered here, these are the most common money sources clients usually mentioned.
Acceptable Sources of Money
- Deposit accounts, vested retirement accounts, stocks, bonds, trust funds
- Gifts (PrimeLending now allows 100% gifted down payments!)
- Sale of asset (home, car, boat – proof required)
- Secured loans: Vehicle, 401k, home equity
- Business assets: Accounts (with accountant letter) or sale of assets
- Rent-to-own: Credit toward down payment cannot exceed the difference between Market Rent and the Actual Rent paid for the last 12 months.
- Seller contributions: Certain percentage of the sales price depending upon LTV & Occupancy
- Down payment assistance: Grant funds or community loans
Unacceptable Sources of Money
- Undisclosed, interested-party contributions
- Payment abatements
- Sweat equity (This is complicated – sometimes yes & sometimes no)
- Funds that have not been vested
- Personal unsecured loans
Here’s the bottom line—if your clients share with you where the money is coming from for their down payment and closing costs, they will have to PROVE it with documentation. Oh, and please contact me if they mention any of the “unacceptable sources” because it may be difficult to get them approved for a mortgage loan.