No Money for a Down Payment? Try Fha

By: Connie Sanders

FHA mortgage loans provide many options to the homebuyer. FHA offers down payment assistance programs that make this loan very desirable to buyers with little cash. Even with out the gift or grant programs a buyer can usually get an FHA loan with as little as a 3% contribution. This means moneys applied to closing costs or down payment. It is a little more confusing than conventional loans but the interest rate is as good or better so it is definitely 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 down payment assistance program.

All of the funds for down payment and all closing expenses may come from an acceptable gift or grant program. These funds must be documented to show that no repayment is expected and the gift donor will not place a lien on the subject property. Gifts can not be used to meet the borrower's required 3 months PITI reserves for 3 and 4 unit purchases.

Gifts must not be used to increase a borrower's assets in order to show reserves remaining after closing that would alter the DU or LP findings from a Refer or Ineligible status to an Approve Eligible or Accept status. The underwriter must review the findings to determine if any gift amount is considered in the reserves reviewed by the system. The gift amount must be deducted from the reserves shown and the loan must be run through the system again to provide the real picture of the borrower's assets and obtain a clear to close approval.

A gift letter is required. The letter should say there is no re_payment required to the gift donor and that the doner is not tied to the loan transaction in any way.

The transfer of funds from the gift donor to the borrower is required. A lender must document the transfer of funds from the donor's account to the borrower's bank account by obtaining a copy of the canceled check or other satisfactory withdrawal document that shows the gift is leaving the donor's account and is being deposited into the borrower's account. If the gift amount is being received at the closing, a certified check from the donor and a copy of the doner's withdrawal receipt from the bank account is required. The closing agent must make copies of these documents to forward to the lender with the closing package.

If the donor borrowed funds for the gift, the donor must provide acceptable documentation that the funds were not borrowed from a party to the transaction or the mortgage lender. Cash-on-hand from the donor is not acceptable.

Other benefits with an FHA mortgage include: low interest rates, forgiving about minor past credit problems, and they have a "no-qualifying" stream-line refinance. As you can see everyone should consider an FHA loan.

Money Management
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