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Down
Payment & Closing Fees
On
purchase transactions, you must show sufficient liquid savings
to pay for the down payment and the closing fees associated
with your mortgage. If your down payment is less than 20%,
at least 5% of the purchase price must be your own verifiable
funds.
There are two types of assets, liquid and non-liquid:
1. Liquid assets are generally funds that are immediately
accessible. Some examples of liquid assets include money in
savings accounts, checking accounts and money market accounts.
Please keep in mind that cash (i.e. mattress money) is NOT
a verifiable asset and therefore cannot be used towards the
down payment and/or closing fees.
2. Non-liquid assets are funds that generally take
time to obtain or liquidate from the account. A good test
for determining liquidity is to ask if there is a penalty
for obtaining funds from the account. Some examples of non-liquid
assets include money in IRA's and 401(k) or 403(b) accounts.
While it is common to borrow against a 401(k) plan, in order
to use the money you must provide the following to your lender:
- Repayment terms
stating the monthly payment.
- Copy of the loan
agreement.
- Documentation
showing the transfer of money from the 401(k) account into
another account.
Can a relative
give me the money for my down payment and/or closing fees?
When the down payment is less than 20% of the purchase price,
you must show that 5% of the down payment is your money. The
remaining balance of the down payment can be in the form of
a gift from a relative.
If you put more than 20% down, all of the funds can be in the
form of a gift from a relative.
Is personal property considered an asset?
While personal property is considered non-liquid, you may sell
it and use the money for your down payment if you:
- Have an appraisal
of the item.
- Can show proof
of ownership.
- Provide a receipt
of sale from the person buying the item.
- Show evidence
of the transfer of funds from one account to the other.
Other asset guidelines:
- Borrowed, not
gifted, funds are not allowed for the down payment and/or
closing fees.
- You must be able
to provide documentation showing the source of funds for
a newly opened (in the last 3 months) account.
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