Since the major changes that hit the mortgage world in the beginning of 2008, it has become very documentation intensive to get approved for a home loan. So it’s a good practice to have a clear understanding of all the documentation you will need to close your loan smoothly and on time. This article is going to detail the items you will need to document the source of your down payment, gift funds if you are receiving them, and lastly clear documentation of your earnest money deposit. These items sound minor, but you wouldn’t believe the problems and frustrations that can arise with a loan closing when these items are not in order.
Documenting the Down Payment with a FHA Loan
FHA requires the FHA borrower have a minimum of 3.5% of the purchase price as a down payment. It must be fully documented from where the FHA borrower is withdrawing the 3.5% down payment. This is most commonly accomplished with two months bank statements, all pages that show the FHA borrower has the funds and has had them for two months. There are other ways to document the source of the funds such as retirement accounts, brokerage accounts or selling an item such as a vehicle to raise the cash for the down payment. If the underwriter sees any large deposits in the two months of bank statements supplied, you must explain and source those large deposits.
Documenting Gift Funds Received for a FHA down Payment
A nice thing about FHA Loans is that you are allowed to receive a gift for all of the 3.5% down payment (or more) from a relative, lifelong friend of the family or your employer. You document completing a gift letter supplied to you by your lender, providing a bank statement from the gift donor showing their ability to gift, documenting the gift funds being withdrawn from the donors account and finally documenting the gift funds being deposited into your account.
Documenting the Earnest Money Deposit
When you purchase a property in most cases you will give an earnest money deposit held at the escrow company to show the seller you are serious in purchasing the property for sale. Generally you will write a check to the escrow company handling the sale. The FHA lender will need a copy of the canceled check front and back and also proof the check cleared your account by it showing up on your bank statements.
I hope this article will make your more prepared to buy your new house with an FHA Loan and have a smooth closings.
If you have any questions or would like to be pre-approved for a FHA home loan, please don’t hesitate to call me at 858-922-7899 or email me at homeloan8@gmail.com
Warm Regards,
Rob Chomentowski
Sr. Loan Officer (and FHA specialist)
858-922-7899
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