FUNDS TO CLOSE for FHA
With DAPS (Down payment Assistance Programs like Nehemiah) going away and the increased requirement of 3.5% buyer contribution, I wanted to share with you the FHA guidelines of FUNDS TO CLOSE. ***Some of these FHA guidelines may have additional investor and industry restrictions so verification per loan is necessary.
So how is your client going to get the necessary funds to qualify for an FHA loan and close their loan on time? After all…they’ve been looking for months and months and now they finally found the right home, got their offer accepted and you’re ready to help them move right on in.
Below are just 3 of the 22 Important Ways to know well ahead of the closing date and quite honestly, you should know these before you start looking for a home or helping a client look for a home. If your mortgage broker or lender does not know these restrictions and possibilites, it’s time to look for someone who is informed and can help to make your transacitons smooth sailing from start to finish.
- Earnest Money Deposit~
If the amount of the earnest money deposit exceeds 2 percent of the sales price or appears excessive based on the borrower’s history of accumulating savings, the lender must verify with documentation the deposit amount and the source of funds. Satisfactory documentation includes a copy of the borrower’s cancelled check. A certification from the deposit-holder acknowledging receipt of funds and separate evidence of the source of funds is also acceptable. Evidence of source of funds includes a verification of deposit or bank statement showing that at the time the deposit was made the average balance was sufficient to cover the amount of the earnest money deposit. - Savings and Checking Accounts~
A verification of deposit or VOD, along with the most recent bank statement, may be used to verify savings and checking accounts. If there is a large increase in an account, or the account was opened recently, the lender must obtain a credible explanation of the source of those funds. - Seller Contributions~
While FHA permits seller and other parties to make contributions of up to six percent of the sales price of a property toward a buyer’s actual closing costs and financing concessions, this policy applies exclusively to the provision of mortgage financing. Other expenses paid on behalf of the borrower must result in a dollar-for-dollar reduction to the sales price (i.e., carpet allowance, etc). When someone other than a family member has paid off debts, the funds used to pay off the debt must be treated as an inducement to purchase and the sales price must be reduced by a dollar-for-dollar amount in calculating the maximum insurable mortgage. FHA deems the payment of consumer debt by third parties to be an inducement to purchase. Buyer must still have their required contribution (i.e., 3.5%) into the mortgage.
All is not lost however simply because you or your client does not have enough savings…stay tuned for info. on gift funds, collateralized loans, employers guarntee plans, sweat equity and so much more.
