Down Payment for Home Purchases Part 1

Down Payment for Home Purchases Part 1

Having the funds for a down payment can make the difference between obtaining a loan or not being able to purchase a home at all. This week and next, Mark Wells of Preferred Financial Services answers some of the many questions customers have regarding down payment:

Are there any programs that do not require a down payment?  Yes, VA loans (for military veterans) and RDA loans (for homes in designated rural zones) are still made with zero down payment required.

There used to be down payment assistance programs. Are there any of those left?  About the only one still in existence is the S.C. State Housing Authority program. If your income is below the median level of the county in which you are buying, the Housing Authority will loan the 3.5 percent down payment that is required on an FHA purchase program. Under certain conditions, the loan can be forgiven after five years. In others, you pay back the loan over time. Funding for this program comes and goes, so it is not always available.

Can I borrow my down payment?  Fannie Mae, Freddie Mac, and FHA allow the down payment to be borrowed under certain circumstances. The most common is to borrow it from your 401-K program. Fannie and Freddie have changed the guideline regarding this, and the 401-K loan payment no longer has to be counted in your overall debt to income ratio. FHA will still count the payment, so for FHA loans you should ask your 401-K plan administrator if you can take a “hardship withdrawal” instead, which is not a loan and does not have to be paid back.

Are there other ways down payment can be borrowed?  Down payment can also be borrowed if it is a loan secured by a fixed asset.  Fixed assets can include automobiles, real  estate, and even boats or RVs. The payment on the loan in these circumstances has to be included in your debt ratios, so you have make sure that your new loan payment does not make you ineligible for your purchase loan. Your down payment cannot be borrowed on a credit card or on an unsecured basis under any circumstances, for any loan program.

Can I get my down payment from a gift?  Yes, but certain rules apply.  FHA has no restriction; your entire down payment can come from a gift as long as the gift comes from a relative out to a first cousin.  Fannie Mae and Freddie Mac require that at least 5 percent down payment come from your own earned and saved funds. Beyond that, any further down payment can come as a gift from a family member. If the amount of the gifted down payment is 20 percent or more, then you do not have to have your own 5 percent funds in the deal.

Wells welcomes questions or comments and can be reached at (864) 235-9596, or by e-mail at