There are several methods to fund your down payment and closing costs without dipping into your funds. Down payment and closing cost assistance programs are also available, but only if your income and loan amount is within limits.
We’d want to go a little further and discuss several options that you might not have considered yet. So here is a list of ten popular and inventive ways to raise these monies.
1. Your Savings
Funds from a personal account should be in the report for at least 60 days before accepting your offer. This is the process of “seasoning” your money. In addition, two months’ worth of bank statements is required to prove that you have saved this money and kept your balances stable for at least 60 days.
Why can’t you use cash or “mattress money”? Well, because there is no way to verify where the money came from or record a history of being able to save money.
Considerable reserves must be explained on your bank statements as well. If you get a present from a relative, the best way to receive this money is outlined below.
If you have already placed the gift into your bank account, it must be there for at least 60 days before applying for a mortgage, or extra proof to establish the source of the cash will be required.
Note: Your funds might be used as a down payment or closing fees.
2. Corporate/Business Accounts
You can send funds to escrow using either your business or personal bank accounts if you are self-employed.
Not a secret that this would need proper paperwork and confirmation of ownership. That’s why before transferring the funds – it would be best to discuss it with your loan officer.
When it comes to obtaining and documenting income and assets, being self-employed adds additional layers of complexity. Just make sure to have a detailed discussion with your loan officer and provide 2-3 years of complete tax returns, including all forms.
3. Gift Money
Gift monies can be accepted by a family member or husband/wife as long as there is no expectation of repayment. A Gift Letter will be required to document the “gift.”
The Gift Letter will record the identity of the individual making the gift, the amount, and the fact that it is a gift with no expectation of return. Your lender will provide the exact wording for a Gift Letter.
The best thing to do is send gift cash straight to escrow before closing. This is an excellent practice since it eliminates the need for your sponsor to document the source of the contribution.
Suppose your sponsor sends you cash or a check to put into your account. In that case, you may be subjected to additional “inspection” and burdensome documentation from the donor, such as two months’ worth of statements and transfer proof for the withdrawal that was handed to you.
Incorrectly sent gift monies might not only be highly inconvenient, but they can also delay the closing of escrow. If you are using a gift, you must have a detailed conversation with your loan officer. However, using gift monies will be pretty simple if you follow the regulations.
Note: Gift money might be used for a down payment or closing costs.
4. 401K or Retirement Plan
Some retirement plans offer a one-time loan to purchase a principal home. The conditions of your retirement plan provider’s home loan assistance will decide whether it may be used for closing costs or down payment.
Borrowing from a retirement account may be achieved in various ways, depending on who handles your retirement. For example, we’ve seen retirement programs that include a loan for down payment assistance with attractive payback conditions.
We’ve also seen programs that allow you to withdraw funds without penalty in order to purchase a property.
5. Assistance Program for Employees
Most lenders will accept your employer’s assistance program if it is stated in your employee handbook and is available to all employees.
The conditions of your employer’s help will typically decide whether it may be used for a down payment or closing costs. What is documented will be approved by the lender.
6. Personal Property Sale
If you own personal assets such as precious metals, art, a yacht, or another house, you must record your ownership of the property in order to use the funds from the sale.
You must provide a detailed paper record demonstrating the sale (receipt) and deposit of the funds (precise amount) into your checking or savings account.
If you cannot verify the actual deposit of the profits from the sale, you may be obliged to have that money seasoned for 60 days before you may use it. Profits from the sale of personal property that have been correctly recorded can be utilized for a down payment or closing fees.
7. Lawsuit, Insurance Claim, or Refund of Taxe
If you get money via a tax refund, an insurance claim, or a lawsuit, you should document it in the same way that you would do with a sale of personal property.
The presentation of the award documents, receipt of the money, and deposit of the funds into your account should be documented.
Money obtained from a lawsuit, insurance claim, or tax return does not have to be seasoned in your account for 60 days and can be used for either a down payment or closing fees.
8. Seller Compromises
A seller concession is a credit provided by the home’s seller to be applied toward closing costs. Although it’s not a rare situation, a seller’s incentive to fund your closing costs might be directly linked to market conditions and your offer.
It’s also suggested that you offer a more significant purchase price if you ask the seller to cover part or the whole amount of your closing costs not to decrease the seller’s expected profit margins.
9. Credit from a Lender
A lender credit can cover your closing costs.
You can get the lender credit if you’ll eliminate regular fees or by using premium pricing to create a refund.
Premium pricing occurs when you agree to accept a higher interest rate in exchange for a credit toward your home’s closing costs.
In a competitive marketplace where asking for seller concessions will place you at a significant disadvantage, using premium pricing to earn enough rebates to cover closing costs is a very effective strategy.
Note: You can use this option only to cover closing costs, but not down payment.
10. Work with a Professional
You can put some money aside for a down payment and closing costs. You can do everything in the best way possible, but if you end up with an incompetent lender, all of your efforts could be for nothing.
Do not underestimate the importance of hiring an expert to help you make decisions about homeownership.
Everyone is an expert until they face a problem. What you need is a skilled expert if something pops up — and the one you can find at LBC Mortgage.
