Funds to Close

FUNDS TO CLOSE

In our quest to make certain that all our loans close easy and smooth, we are providing you with the ways that Lending Guidelines allows for “Funds to Close”.   It is important to know that all funds for the borrower's investment in the property must be verified and documented

 

Acceptable sources of these funds include the following:

  • Checking and/or Savings- all large deposits must be documented
  • Collateralized Loans (i.e. loans borrowed against vehicles, boats, etc.)- buyer must qualify for the extra loan payment.  Note as of 9/14/2015, FHA will not allow collateralized loans against a non-financial asset.
  • Financial Collaterized Loans (i.e. secured by a financial asset of the borrower, such as deposit accounts, certificates of deposit, investment accounts, or real property)  These assets may include stocks, bonds, and real estate other thatn the property being purchased.
  • Sale Proceeds from another home- Will need HUD-1 (Settlement Statement)
  • Sale of Personal Property  (i.e., selling of cars, jewelry, boats, guns, etc.)-  Specific documentation will be required-  Talk with us first!!
  • Gift Funds for blood relatives -see below for each product
  • Selling of Stocks and/or Bonds- Specific documentation will be required-  Talk with us first!!
  • Liquidating IRAs and  401(k) Specific documentation will be required-  Talk with us first!!
  • Immediate Family Member Lending (FHA and VA ONLY)- Specific documentation will be required-  Talk with us first!!
  • Specific First Time Home Buyer Programs (when/if available) (FHA ONLY)- Talk with us first/ Area and Income Specific!
  • Premium Pricing-  See below

 

Important:  Specific liquidation/documentation required and mandatory on the above-   Talk with us first before doing anything!

 

Premium Pricing

Another way for part of the funds to close is “Premium Pricing” or “Premium Rebating”.   When a lender quotes an interest rate, it is typically at what is called “Par” meaning that the rate can be obtained without any rebate money to give to the buyer.   Lenders can also quote a higher interest rate and receive a rebate which can then be passed on to the buyer.   This allows the buyer to have monies to apply toward their closing cost from the lender, typically shown as a lender credit or negative discount.    So using an example of a $100,000 loan, for every .25 the rate goes up, it makes a difference of $10.84 in the payment.   Typically (depending on the discount market for the day), we can increase the interest rate enough to pay 1% to 2% (sometimes more) of the loan amount towards closing cost-so in our example of $100,000 loan then a lender could pay anywhere from $1000-$2000 toward buyer’s cost.   In a rule of thumb for every .25 the interest rate increases, the lender can pay 1% towards cost (more or less)-  again, this can change hourly/daily depending on the market.    If a buyer is going to be in the home for less than 7 years, then premium pricing is not a bad idea.   If the buyer is planning to stay longer in the home/loan than seven years, then other options should really be looked at first if possible.  

 

 

Allowable Gift Funds by Mortgage Type

FHA

Acceptable Donors.  A gift can be provided by:

  • a relative, defined as the borrowers spouse, child or other dependent, or by any other individual who is related to the borrower by blood, marriage, adoption or legal guardianship; or
  • a documented fiancé, fiancée, or domestic partner
  • a close friend with a clearly defined and documented interest in the borrower
  • ·       The donor may not be, or have any affiliation with, the builder, the developer the real estate agent, or any other interested party to the transaction.  Gifts are not allowed on an investment property.

As of 9/15/15 FHA requires donor's bank statement showing withdrawal of gift funds.

VA

Follow FHA guidelines

USDA

Follow FHA guidelines

Conventional

Acceptable Donors.  A gift can be provided by:

  • a relative, defined as the borrowers spouse, child or other dependent, or by any other individual who is related to the borrower by blood, marriage, adoption or legal guardianship; or
  • a fiancé, fiancée, or domestic partner [glossary of domestic partner: an unrelated individual who shares, and intends to continue sharing, a committed relationship with a borrower who signs the note.]

The donor may not be, or have any affiliation with, the builder, the developer the real estate agent, or any other interested party to the transaction.  Gifts are not allowed on an investment property.

 

 

Documenting Gift Funds (All Mortgage Products)

If the gift funds ...

Then the lender must ...

are in the borrower's account  (or being deposited into their account) and the donation is being given by personal check (need to do a minimum of 10 days prior to closing)

obtain a copy of the cleared check from the donor showing that the withdrawal was from the donor's account and a copy of the borrower's deposit slip and bank statement/print out showing the deposit.   It is also important to note that the lender may need to show the transaction history from the last bank statement or VOD (Verification of Deposit) until the gift funds are deposited as well as document the new balance of funds available.

are in the borrower's account  (or being deposited into their account) and the donation is being given by wire transfer (need to do a minimum of 7 days prior to closing)

obtain a copy of the withdrawal document showing that the withdrawal was from the donor's account, documentation that the donor had the monies available originally and show the borrower's bank statement/print out showing the deposit.   It is also important to note that the lender may need to show the transaction history from the last bank statement or VOD (Verification of Deposit) until the gift funds are deposited as well as document the new balance of funds available.

 

are to be sent to the title company, and

are in the form of an electronic wire transfer to the closing agent

 

obtain from the donor documentation of the wire transfer as well as document that the donor had the monies available originally.   Note: The lender must obtain and keep the documentation of the wire transfer in its mortgage loan application binder. While the document does not need to be provided in the insurance binder, it must be available for inspection by FHA's Quality Assurance Division (QAD) when that office conducts its onsite review.

 

are to be sent to the title company, and

are in the form of a certified check, cashier’s check or money order from the donor's account

 

obtain a bank statement showing the withdrawal from the donor's account (and proof that the donor had the monies available originally), and a copy of the certified check.  It is also important to note that some Title Companies may not accept a check from an outside party (i.e., the donor).  If the gift was given in the form of a personal check, then a copy of the cleared check will show that the donor had the funds originally available. 

 

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