For many years homebuyers have been able to buy a home with zero down loans. With all the foreclosures and the "declining" market, those loans have disappeared. Now we need a minimum of 3.5% down for FHA loans and between 3 and 5% down for conventional loans. If you are buying in rural development area or have VA eligibility, you can still buy zero down.
For those that need money for closing, the lender needs to verify where it is coming from. One of the biggest questions I get is can I get a gift from someone? Gift money is a wonderful option for those buying with an FHA loan and some conventional loans, but it has to be verified and it has to be from a relative. For FHA loans, we have to be able to show the that person giving the gift has the money to give it. So we will need a gift letter, a bank statement from the person giving the gift and a copy of the cashier's check that was given to the buyer. For a conventional loan, we need a gift letter and a copy of the cashier's check.
If you are saving money for closing, we need to be able to show the money is in your account and we need a 30-60 day history of the bank account. If there are large deposits that are not normal (not payroll), we will need to know where that money came from. The reason underwriters want to know is to show that there is not a new loan that could affect your ability to make your house payment. If you are selling something to get the money for the down payment, we need to know what you are selling, get a blue book value or something similar, a receipt showing that you sold the item and a copy of the check paying for the item.
It is very common for the seller to pay some or all of the closing costs. If you are short on cash, that is one way to help come up with some of the money you need to buy a home. You will need to make sure it is allowable with your loan and write it into the purchase agreement. Remember that if you are asking the seller to pay your closing costs, they are netting less on the sale of their home, so you may need to increase your offer to compensate for that.
It is also very common to need reserves for your loan. Reserves are extra money you have but you are not using in the transaction. Conventional loans may need a minimum of two months of reserves (2 months of house payments). Retirement accounts may be used for reserves, if you have access to them. If your credit history is spotty, several months of reserves may make it easier for you to get approved for a mortgage. We just need a copy of the statement showing that you have the money and sometimes we need to show that you have the ability to withdraw that money.
Save your bank statements if you are looking to buy a home, your lender will want them. If you know you have large deposits that are not normal, be prepared to explain them. If you are using a retirement account, keep a statement for that account. Having the documentation available will make it easier on you and help get your loan approved faster!
Leslie Vanderwerf, Advisors Mortgage - lvanderwerf@advisorsmtg.com – Website
