Once you've figured out how much of a down payment you can make
on your home mortgage, it's time to determine how to document
the source of your funds for the down payment and closing costs.
Now you might be saying, "Why do they care where I get the
money?" Lenders need to verify the source of funds to both
assess the underlying risk in you as a borrower as well as to
prevent loan fraud. This makes it imperative for you, the
applicant, to maintain complete and detailed records of how the
money which you plan to use for a down payment makes it into
your hands. Money from your own savings, checking & money market
accounts looks best to the bank for a variety of reasons, and is
amongst the easiest sources of capital to document.
Money in the bank is also very easy to document. The lender has
the option of asking you to submit bank statements to them
indicating that you have the money for the down payment and
closing costs, or performing a formal Verification of Deposit
directly with your bank. Most lenders ask for statements,
generally 2 to 3 months if you are providing full income
documentation or up to 24 months if you are providing
alternative documentation of income.
When discussing your down payment, your lender may discuss the
topic of seasoning requirements with you. If you have money in a
bank account for 3 months and it reflects consistently in
consecutive statements, that money is considered "seasoned" 3
months. Your lender may require that your down payment money be
comprised of seasoned funds, and that any large influxes of
capital into your bank account may have to be extensively and
thoroughly explained, documented, and potentially disqualified.
So start saving and plan ahead!
There are loan types which do not require any form of
documentation in this regard, particularly No Asset Verification
mortgages or "no assets" loan programs. Just as it sounds, this
type of mortgage does not require any verification of assets,
however lenders generally do not allow the applicant to borrow
more than 60% to 70% of the property value without some form of
asset verification. There is another type of loan program which
is increasingly popular over the last few years called Stated
Income Stated Assets mortgages, which allows for limited
verification of assets, and some of these programs allow up to
75% or 80% of the property's value to be loaned to the borrower.
Buying a home with no down payment, often referred to as a "no
money down" mortgage, has become a popular way for first time
buyers to enjoy the benefits of homeownership without
substantial savings, however it is important to note that
borrowers who want a zero down loan will be faced with higher
interest rates and monthly payments and are statistically shown
to have higher rates of default and foreclosure.
No matter what you decide to put down, if you have and can
document assets above and beyond the down payment and closing
costs on the home and mortgage you can establish "reserves" with
your application. Having ample capital reserves, good credit,
and your down payment sitting in your bank account for a couple
of months can in combination help you qualify for some of the
best programs available, and potentially save you hundreds of
thousands of dollars over the life of your mortgage.
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