Mortgage Down Payment Tips and Sources
What is the Down Payment?
A down payment is a lump sum of money paid upfront by the buyer when purchasing a property.
The down payment represents a portion of the total purchase price of the property and is typically a percentage of the property’s value, with most lenders requiring a down payment of 5% to 20% of the purchase price.
The remaining balance of the purchase price is usually paid through a mortgage loan.
Down Payment Purpose
The purpose of a down payment is to demonstrate the buyer’s commitment to the purchase and to reduce the risk of default for the lender.
By providing a down payment, the buyer shows that they have some financial stake in the property and are less likely to walk away from the mortgage if they encounter financial difficulties in the future.
Possible Down Payment Sources
The down payment can come from a variety of sources including:
- Personal savings
- Gifts from family members
- Proceeds from the sale of a previous property
- Sale of personal chattels – with receipt of sale
- Secured lines of credit
It’s important to note that some lenders may have restrictions on the source of the down payment, so it’s important to discuss this with a lender before making a purchase. Borrowing down payment from credit cards or unsecured lines of credit is not usually allowed, nor is receiving funds from non-related sources (friends, business associates, etc).
Down Payment Source Validation
Lenders will typically require documentation to validate the source of the down payment, which may include bank statements, gift letters, and investment account statements.
The lender will want to ensure that the down payment is coming from a legitimate source and that there are no undisclosed loans or other financial obligations that could impact the borrower’s ability to repay the mortgage.
Anti-Money Laundering Regulations
There is no specific government department that ensures the source of the down payment, but lenders are required to comply with federal anti-money laundering regulations and may also have their own internal policies for validating the source of funds.
It’s important for buyers to be transparent about the source of their down payment and to work with a reputable lender to ensure a smooth and transparent transaction.
Conclusions and Further Thoughts
Finally, it’s really important to discuss your source of down payment upfront with your mortgage broker or lender. Huber Mortgage has over 10 years of direct lending experience and will help you organize the legitimacy of your down payment, advise on possible obstacles you may face or down payment sources that will not be allowed.
Having a clear and direct discussion will avoid the occurrence of funds being disqualified later on or confusion resulting after funds having been transferred into different accounts, requiring additional supporting documentation.
Call Huber Mortgage for a free, upfront mortgage consultation!