What’s an Approved Down Payment?

Approved Down Payment. Who Gets to Decide?

Had an unusual question from a Texas Real Estate Agent recently.

We provided a mortgage pre-qualification form using the document required in the Texas Administrative Code, Title 7: Banking and Securities, Part 4, Chapter 80, Subchapter C…Rule 80.201

You can find the form here.

The Pre-Qualification form indicated that the client was pre-qualified for a conforming 30yr fixed rate linked to the borrower’s full-price offer.

A Conforming Loan is a Mortgage Loan Securitized by Fannie Mae or Freddie Mac

Fannie Mae and Freddie are government-sponsored enterprises that securitize mortgages.

We provided the letter to the buyer/buyer’s agent. They planned to submit the pre-qualification form and the prospective buyer’s offer to the seller (via the listing agent). That’s customary lately.

The next day we received a request from the (experienced) listing agent that was very detailed (which was OK) but had one question that seemed strange.

The question was, “will the buyer use gift funds or funds from a 401k for down payment funds?”

The buyer’s agent also referred the listing agent to contact me directly to verify the pre-qualification.

Fannie Mae and Freddie Mac Allow Gift Funds and Funds from a 401k

He called…but the question confused me…why would the real estate agent want to know this information when the agency guidelines allow gift funds or funds from a 401k?

Those funds are viewed as “funds available to close,” just like any other funds (such as an existing bank account balance).

Additionally, loans from any retirement account qualify…as do proceeds from a home equity loan (if the borrower also owns other properties).

Since we already identified the loan product on the form as a “conforming loan,” it was an irrelevant question. If acceptable by Fannie Mae or Freddie Mac, why was this question asked? For what screening purpose?

I replied (in writing, to avoid being misunderstood) that we used the exact form that the State of Texas requires for this purpose, and most of his questions were already answered on the form.

Financial Privacy

Questions (from a seller’s agent) about the buyer’s retirement account or “gift funds” were unusual because this would be a “conforming loan” (Fannie or Freddie). Both agencies accept gift funds and/or retirement funds (including loans from a retirement account) as “acceptable” sources of down payment.

Why was this a screening question if those down payment sources are acceptable with Fannie Mae and Freddie Mac (plus FHA + VA)?

For Financial Privacy reasons, I couldn’t discuss the buyer’s bank accounts/asset accounts with a seller/seller’s agent without the buyer’s express consent beyond what was already provided on the required Texas form.

Heard nothing back after that.

Later, I heard that the agent was “angry” with my response and found it “very unprofessional.”

Really?

Have no clue why pointing out the actual loan guidelines and providing a required Texas form to a real estate agent (and questioning/commenting on the request) would be received as “unprofessional.”

It’s common for retirement funds, interested-party gifts, seller credits, and/or proceeds from home equity loans to be utilized for down payments and closing costs. So common that the question (in the form of a screening question after receipt of the Texas pre-qualification form) surprised me.

Family gifts and retirement account redemptions or loans are allowed and are often a good financial planning strategy for the borrower (to avoid using “cash” or selling an investment).

Another common approved strategy for obtaining down payment funds is to utilize equity from separate property via a “cashout loan” or a “home equity loan.”

Bottom line, if buying or selling a home, it’s good for you to know mortgage guidelines so that you don’t screen out someone who qualifies. And if someone tells you that you don’t have an approved down payment source, get a second opinion (or see for yourself, Fannie Mae and Freddie Mac publish them online).

Approved Sources of Down Payments:

• • Asset accounts (bank accounts, investment accounts, and similar).

• • Proceeds from the verified sale of an asset.

• • Verifiable income deposits (bonus/salary/debt repayment/etc.)

• • Family gifts.

• • Interested Party contributions (can apply to closing costs).

• • Retirement accounts (including loans from retirement accounts).

• • Home Equity Loan (from a different property).

• • Acceptable contributions from local housing agencies, labor unions, qualifying non-profits, etc.

Crypto isn’t (directly) an Approved Down Payment for a Conforming Loan

Contact Steve Silver at Silver Mortgage, at 1-800-920-5720.

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