Let's continue our series on acceptable sources of down payment.
Yes, it’s true, there are some acceptable circumstances where a person can borrow funds for their down payment, as well as closing costs, prepaids, and discount points. In this post, we'll highlight a few of these.
Stocks, bonds, autos, real estate (other than the subject property). Last week a client of mine needed money for a down payment. She owned her car free and clear. She took out a loan against the car and used it for a dp. Simple enough. However, this new payment must be used in the DTI calculation. When she gets her tax credit next year, she can use the funds to pay off this loan. Or, I should say, replace this loan with her tax credit obligation.
IRAs, Thrift Savings Plans, 401(k)s, & Keogh Accounts. When the funds are borrowed from these sources, we do not need to count their monthly repayment in the DTI calculation. But be careful—these funds cannot also be used as reserve funds or taken into consideration as a compensating factor to approve the loan.
FYI: Stocks and Bonds. The monthly or quarterly statement provided by the stockbroker or financial institution managing the portfolio may be used to verify the value of these securities. Actual receipt of funds must be verified and documented.
Stay tuned for more ideas on creative down payment options.
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