Last month we learned about the options Mr. Johnson had when purchasing a home before selling his house in the origin location. His next concern is his down payment, specifically, how much does he need to put down and where can it come from.
Down payment requirements vary depending on the loan product, an individual’s credit situation and home location. Because each situation is different, it is important that transferees are counseled to ensure they understand the options that are available. Even though each situation is different, there is one recent trend that has immerged across all lending options—the requirement of a larger down payment. Today, most true “no” or “low” down payment loans have disappeared.
Down payment funds can come from many sources. Proceeds from a closed home sale are the most common down payment method used by transferring employees. Equity advances and secured bridge loans continue to be popular ways to connect equity from an in-process home sale to a home purchase.
*Liquidating cash or investments from bank accounts, mutual funds, 401k or stock has increased in popularity as home sales days-on-market have increased and available equity has decreased. Proper documentation showing ownership and liquidation may be required with this option.
Gift funds are still acceptable with a clear and direct paper trail from a relative. A promise of repayment of the “gift” will turn these funds into a loan and is not an acceptable source for closing.
Borrowed funds and unsecured debt continue to be unacceptable down payment sources and will not be considered as allowable funds to close. Borrowers can use a secured loan for a down payment, but only if the loan is secured against a tangible assets (car, boat or other such collateral). Signatures or cash advances on credit cards are not permitted.
Now that Mr. Johnson understands his down payment options and how he can qualify without selling his house, he decides that holding off until his home sells is his best option.
Next time we will begin to look at corporate relocation costs and savings opportunities associated with the purchase of a new home.
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