Dealing with the Down Payment: Part 2

Dealing with the Down Payment

This series for first-time homebuyers is all about understanding down payments in order to make smart decisions when it’s time to buy. The reality of rising real estate prices and decreasing affordability along the Front Range of Colorado means it’s more important than ever to be knowledgeable as you start looking for a home. In the second part of our series, we look at requirements for the money you use to make your down payment.

Seasoned funds
The money you use for a down payment must be seasoned and in a verifiable, liquid account. To be seasoned, the money must have been acquired more than two months prior to the mortgage application. If it’s not seasoned, it has to be fully documented for the underwriter. Liquid accounts include checking, savings and money market accounts.

Gift funds
Money given from a relative toward a down payment must be gifted, rather than borrowed. Documentation is required with a Gift Letter stating that repayment is not expected. Verification of the transfer of money is also required.

Secured loans
Loans taken against a secured asset (like a retirement account, car, or other real estate asset) require documentation and verification of the deposit into a liquid account. The terms of the loan must also include these payments in the debt-to-income ratio.

Liquidation of assets
The sale of investment accounts like stocks, bonds and retirement accounts also requires documentation, as does the sale of personal property.

Cash isn’t an acceptable source of funds for a down payment because it can’t be documented. If you have cash on hand, deposit the funds and get them seasoned. The same rule of thumb applies to precious metals, collectibles, etc.

Learn about the basics of down payments and three down payment options in the first part of this series . Learn about the basics of down payments and two standard down payment options in the first part of this series, and understand different assistance programs available for home buyers in the third part. For more information, try out our mortgage affordability calculators, sign up for a complimentary seminar, or contact our mortgage team.

Author Elizabeth Million

Boulder local Elizabeth Million shares advice on home buying and mortgages picked up from the diverse roles she’s served in the real estate industry, including appraisal business owner and mortgage loan officer for Fortune 500 companies. In her current role as VP of Mortgage Lending, Liz has led Elevations to the title of largest credit union mortgage lender in Colorado.

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