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FHA loans and down payment rules

New purchase FHA home loans require a “minimum cash investment” of at least 3.5% of the appraised value of the home or the sales price, whichever is lower. But where can this down payment come from?

FHA loan rules require the lender to verify the source of the down payment to insure it comes from what the FHA terms “acceptable sources”.

Acceptable sources can include savings accounts, grants and collateralized loans, bonds, the money earned from the sale of personal property, rent credits and many others. Investments are also considered an acceptable source. Gift funds are also acceptable, with exceptions as described in Chapter Five:

“The gift donor may not be a person or entity with an interest in the sale of the property, such as

• the seller

• the real estate agent or broker

• the builder, or

• an associated entity.”

When it comes to gift funds, FHA loan rules also state, “Regardless of when gift funds are made available to a borrower, the lender must be able to determine that the gift funds were not provided by an unacceptable source, and were the donor’s own funds. The funds of gifts will need to be traced, Let’s say your sister gifts you money for a down payment, she will need to provide a gift letter along with a bank statement or other statement showing where the funds came from.

As previously mentioned, borrowers can use collateralized loans to make a down payment, but there are limitations–and FHA loan applicant cannot use any loan that does not have collateral securing it such as cash advances on credit cards or loans against household goods or furniture.