I received the following questions from a very seasoned real estate agent the other week:
“I have a 3.5% down offer for $795,000 on my desk – A. Does FHA even go that high; and B. What are the legal sources of funds for a down payment and closing costs?”
MAX FHA LOAN AMOUNTS
In “high-cost areas” (most of Coastal California) once again, the single-family FHA loan limit is $765,600.
So yes – an FHA buyer can purchase a $795,000 home with a tad over 3.5% down.
In most of the Dallas and Austin areas, the max FHA loan amount is now $404,800, so the max purchase price with 3.5% down would be just under $420,000.
LEGAL SOURCES OF FUNDS FOR DOWN PAYMENTS, CLOSING COSTS AND RESERVES
- Gifts from relatives: FHA and most conventional lenders will accept gifts from close relatives, including parents, children, aunts, uncles and siblings.
- Loans from retirement funds: Funds can come from 401k loans and similar. These loans, however, can sometimes adversely impact debt ratios.
- Cash proceeds from the sale of an asset: Buyers can sell a car, a boat, jewelry, etc. and use the funds towards the purchase of a home. Buyers will, however, have to show a bill of sale to corroborate the sale.
- “Cash Out” real estate loans: HELOC funds and cash from a first mortgage refi are both considered legal sources of funds.
- “Seasoned” savings – stocks, bonds, cash, gold, etc.: Liquid savings of almost any type are valid funds. BUT, those savings need to be “seasoned” for at least two months, meaning there should be no large deposits showing up on the most recent two statements. If there are large deposits, they will need to be “paper-trailed” and explained.
- Cryptocurrencies: This is fast-changing (even at Fannie Mae), but most lenders will still not accept cryptocurrencies even if they have been converted to cash. If buyers are determined to use cryptocurrencies for down payment funds, they would need to convert the crypto funds to cash more than two months prior to purchase so the funds are “seasoned.”
Illegal or improper sources of funds include “mattress money” or cash that is sitting outside of an institutional account, any type of cash advance or unsecured loan, and salary advances.
Jay Voorhees
Founder/Broker | JVM Lending
(855) 855-4491 | DRE# 1197176, NMLS# 310167
