This BLOG On Down Payment Requirements On Home Purchase Illinois Was UPDATED On January 9th, 2019
What Are The Down Payment Requirements On Home Purchase
Unless mortgage borrowers qualify for a VA or USDA mortgage loan, there are down payment requirements on a home purchase. Besides the down payment requirements, lenders want to know how the home buyer is coming up with closing costs.
- There are certain states like Illinois where Illinois home buyers get property tax prorations by home sellers due to property taxes being paid in arrears.
- What this means is that the home seller owes the buyer of the property tax credits
- Illinois home buyers get property tax prorations by sellers.
- Home Buyers in Illinois can use property tax prorations towards their down payment
- However, they still need to show that they have the minimum down payment requirements on their home purchase
In this article, we will cover and discuss the Down Payment Requirements On Home Purchase Illinois.
Closing Costs On Home Purchase
Closing costs can be covered in the following ways:
- Sellers Concessions
- Lender Credit
- Home Buyers own funds
- Gifted Funds
Lenders Want Documents Sourced Funds For Down Payment And Closing Costs
The source of down payment and closing costs will be required and must be documented at the time of application.
- For conventional mortgage loan products, the minimum down payment requirements on a home purchase will normally be 5% normally
- First time home buyers with higher credit scores can qualify for 3% down payment on a home purchase with conventional loans
- FHA insured mortgage loans require down payment requirements on a home purchase to be 3.5% for those borrowers above a 580 FICO credit score
- 10% down payment requirements on a home purchase for mortgage borrowers with under 580 credit scores with approve/eligible per Automated Underwriting System Findings
- Closing costs on a home purchase varies from state to state and county to county
Normally closings cost average around 3% of the purchase price.
Down Payment Requirements On Home Purchase Depends On Loan Program
As mentioned earlier, the down payment needs to be shown and documented at the time of the mortgage application and at the time of processing before it gets submitted to underwriting.
- All down payments need to be seasoned at the borrower’s bank account for at least sixty days
- If it not seasoned for sixty days, it needs to be sourced
- Mortgage Borrowers need to provide documentation where the deposit of the down payment came from
- If it was from a sale of a car, a bill of sale and documentation is required to prove that the sale did in fact happened
- Cash deposits without no paper trail are worthless and cannot be used
If it is an income tax refund check, the copy of the check and deposit slip will be required.
Gift Funds For Down Payment On Home Purchase
FHA and other loan programs allow gift funds from family members and relatives to be used towards the down payment on a home purchase. However, gift funds are not viewed as favorably.
- There are many times where the Automated Underwriting System will not approve a borrower with gift funds on a down payment on a home purchase if the borrower has lower credit scores
- However, AUS may approve a lower credit score borrower where their down payment on a home purchase is not gifted
- A creative loan officer can help borrowers get an approve/eligible with gift funds on a home purchase
There are certain tricks of the trade on how to make this work.
How Does Gift Funds For Down Payment Requirements On Home Purchase Work
This is how a gift letter by donors work:
- However, a gift letter by the donor is required stating that the gift funds are not a loan and is a gift and will not be paid back
- The gift letter will be provided by the lender and needs to be signed and dated by the donor
The withdrawal of the money leaving the donor’s account into the recipient’s bank account is required along as a prior thirty-day history of the donor’s bank account.
AUS Conditioning For Reserves
There are instances where Automated Underwriting System Findings will ask for Reserves.
- Reserves are one month’s Principal, Interest, Taxes, Insurance (P.I.T.I)
- Gift Funds cannot be used for Reserves
- Reserves need to be borrower’s own funds
Closing Costs And Down Payment Requirements On Home Purchase
If the real estate purchase contract is structured correctly, home buyers do not have to worry about any closing costs:
- FHA insured mortgage loans allows up to 6% in sellers concessions towards a buyers closing costs
- Conventional mortgage loans allow up to a maximum of 3% for owner-occupied properties and 2% sellers concessions on investment homes
- If home buyers can get the proper amount in sellers concessions where it can cover all closing costs, they do not have to come up with any additional cash for closing costs
- VA Loans allows up to 4% sellers concessions
- Closing costs and escrows can be covered either with sellers concessions and/or lender credit
- The only thing that you need to worry about is the down payment
- Borrowers need to show the 3.5% down payment on home purchase on FHA Loans and 3% to 5% on Conventional Loans
- Home Buyers on states like Illinois where property taxes are paid in arrears might not need the full 3.5% down payment to close the loan.
- Remember that property taxes are paid in arrears in certain states like Illinois
- On states like Illinois where property taxes are paid in arrears, home buyers will get property tax prorations credits which can be used towards the down payment on a home purchase
- There are many times where home buyers walked out of the closing with money back from the sellers and the keys with zero money down where property tax proration credits were large
Borrowers who need to get qualified for a mortgage loan with a direct lender with no lender overlays, please contact us at Gustan Cho Associates at 800-900-8569 or text us for faster response. Or email us at gcho@gustancho.com. We are available 7 days a week, evenings, weekends, and holidays.
Gustan Cho NMLS ID # 873293
