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Refinance & Mortgage Tips: Down Payment From Savings
By: Tristan Hunt
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.
About the Author:
Tristan Hunt is a seasoned financial professional with a wealth of experience in
the mortgage industry, advising clients on debt consolidation, refinancing &
investor loans. Website: http://www.RefinanceOne.net
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