How To Navigate The Down Payment Process
Those homeowners who are purchasing a home for the first time are likely to wonder about the down payment process. […]
Those homeowners who are purchasing a home for the first time are likely to wonder about the down payment process.
It’s true that there are many aspects to consider before a down payment is ever made.
Two of these are documenting assets and verifying the down payment.
Down Payment Misconceptions
Some homeowners believe that when it’s time to submit a down payment that
the money can simply materialize somehow.
But the truth is that the money needed for a down payment should be thought out carefully.
Your lender needs to be able to confirm where your money for the down payment is coming from.
Your borrowing strength will be viewed as much more favorable if you can somehow prove that the funds for your down payment are coming from your personal savings.
Along with this, another thing that can greatly assist you is letting your lender know that you have assets which don’t need to be set aside for your down payment.
These are usually in the form of cash reserves which can be there for you in times of a medical emergency, unemployment or other life events.
Documenting Your Sources
Any monies used for your down payment or closing costs should be carefully documented.
You will want to include sources like any money you may have in your bank account, any funds that may be tied up in investments like mutual funds, stocks or a 401k,
any money you received as the result of the sale of a property, and any monetary gifts you may have received from relatives.
Money from Bank Accounts
The quickest way to verify the money in your bank accounts is to provide your lender with copies of your bank statements. These should be as recent as possible.
Your lender may request that you provide statements that go two or three months back.
In addition to providing current statements, your lender may ask your bank to verify them with a “Verification of Deposit” order, although this is a more traditional and less-used method.
The time your funds have been in the bank will count.
If you have been keeping the down payment funds in your bank account for the same amount of time that your bank statements show, then they will be considered by the bank to be ‘seasoned’ funds.
On the other hand, if you have any significant amounts being deposited into your bank accounts, you will be required to explain them.
Stocks and Other Assets
These items will also require statements, which should be sent to you by your brokerage. These asset types are usually documented every two to three months.
If you have stock certificates, these will need to be copied, and the copies then given to your lender.
If you have owned stocks for a significant time period, your tax records may be needed to verify this for your lender.
Any 401ks that are used to contribute to a down payment will need to be documented.
The best thing to do is ask your employer if they will allow you to cash out a part of your 401k or borrow against it.
Whatever your employer allows, always ensure that copies of every stage of every transaction are made.
You will also need to ensure that you keep bank account deposit receipts.
Any would-be homeowner who has sold personal property in order to come up with a portion of their down payment may face a more complicated process where verifying these assets are concerned.
If you have sold a car and want to use the money toward a down payment, this may be the easiest transaction to document.
In the case of a vehicle sale, the registration must be copied.
Then, a copy of the Blue Book page listing your vehicle will need to be copied, as will the bill of sale and copy of the check received for the vehicle purchase.
Documenting any monetary gifts received from relatives will involve the creation of a ‘gift letter’ by the person who provided the money.
In the letter, the provider should state their relationship to you, how much the gift totals and perhaps even where the money came from.
Although documenting all of the monetary sources for your down payment can seem like more of a hassle than a help, the more that is documented, the better you will look to your lender.
And this can lead to possible deals on your loan down the road.
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Guest author Sam Dickson is a frequent contributor at The IOU Calculator, a site that provides a free mortgage calculator and advice for consumers in the market for buying a home or refinancing.