Down payments must be your very own blood, sweat, and tears. Lenders want your down payment to come from your own savings or checking accounts. Other people can’t make your down payment for you, though they can help by giving a gift. Otherwise it has to come from you. There are programs that require no down payment whatsoever, or loan programs that you let you borrow your down payment, but most every loan available will require some type of down payment, which needs to come from you or a family member.
First and foremost will be the money in your bank or savings accounts. Your lender will typically ask for account statements for the preceding three or more months to verify your funds to close the deal. Why three months? A lender wants to see a pattern or history of an account. If suddenly $20,000 pops into your bank account, the lender wants to know where it came from. Did you borrow it from someone else? Are you obligated to pay it back? By providing three or more months of statements the lender can determine that the funds you’ve saved came from you and you only. Some home buyers know this and are in fact advised by some loan officers to simply ‘‘put some money in the bank and call me back in three months,’’ assuming that the lender won’t care where the funds came from if in fact they’ve been in an account for that period. Quite true. It’s also quite true that lenders can ask for more than three months. They can mostly ask for whatever they want if they think they’re having the wool pulled over their eyes.
Your funds can come from your job, a bonus, your regular savings, selling something, or borrowing against an asset. Your paycheck can certify that you’re getting a certain amount each month and you can verify that it’s going into a bank account. Same with any bonus or commission income. It’s documented as you make it. Some people have assets they can sell for down payment money. Do you have a car you can sell? Artwork? Stocks? The key to selling an asset is first, you need to document the transaction, and second, the object sold must be an appraisable asset.
An appraisable asset is an item whose value can be determined by a third party expert. That car you want to sell? It’s an appraisable asset. Its value is independently appraised by a variety of automobile pricing schedules or even classified advertising. Do you have an expensive watch or heirloom jewelry? If the item can be appraised, in this instance by a gemologist or jeweler, and sold then you can use those funds to buy the house.
Another form of down payment can come from a ‘‘pledged asset.’’ A pledged asset is typically a stock or investment account that you can borrow against for a down payment. The stocks aren’t cashed in, you simply pledge the asset as collateral for down payment funds. If it can’t be appraised, the lender may not be able to use those funds for a down payment.
If you can’t document where your down payment money is coming from, many loans won’t allow for that. Lenders want to be absolutely certain that the money you used to buy the house is not borrowed from another source. Borrowing from another source will affect your debt ratios and your collateral. It also affects your equity in the property and increases the risk in the loan. That’s why people can’t take out cash from their credit cards for down payments. That money’s borrowed. Lenders want to see you save your down payment.
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