Overview

When purchasing a home, the down payment is the biggest hurdle to overcome as they can range anywhere from 3.5% for FHA up to 20% for conventional financing and to avoid private mortgage insurance or PMI.  It is important to remember that the down payment that you need also should include closing costs, which can range from another 2-5% depending on the size of your purchase. 

Depending on the type of finacing your, lender may require reserves or savings to cover future monthly payments and can range from zero up to six months required.

Lender down payment requirements can be confusing and maybe a little frustrating.  However, understanding your down payment options and what the lender will require can make the dream of homeownership attainable sooner and remove a lot of the frustration in the pre-approval and final loan approval process.

Sources of Down Payments

Lenders will allow savings from several different sources as well as gift funds. Down Payment requirements will vary depending on the lender you choose, however, the most commonly acceptable down payment sources include the following:

• Checking
• Savings
• 401k
• Stocks
• Bonds
• IRAs
• Trust accounts
• Life Insurance (cash value)
• Gift 

The Use of Gift Funds

In today’s home purchase market, using gift funds as a source of down payment has become more common.  The person who is gifting the funds cannot financially benefit from the eventual sale of the property or expect to be repaid.  The lender in almost all circumstances will require a letter from the individual who is gifting the funds stating such. 

Gifts received may only be received must be from a:

• Relative
• Close Friend
• Employer
• Labor Union
• Charitable Organization
• Government agency (i.e. homeownership assistance)

Summary

Understanding your options for coming up with a down payment on your home purchase and the documentation required by the lender will help to make the dream of homeownership attainable sooner than you may have originally thought and alleviate the headache of obtaining lender approval during the critical time of pre-approval and final loan approval.