Traditional conventional and government loan programs indeed have specific rules and regulations regarding down payments and closing costs. These rules are in place to ensure the stability and integrity of the lending process, as well as to protect both the borrower and the lender. Here’s a breakdown of some common rules and requirements:
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Down Payments:
- Source of Funds: Lenders typically require borrowers to provide documentation of the source of their down payment funds. This is to ensure that the money used for the down payment is not borrowed or obtained through dubious means. Common sources include savings accounts, investment accounts, gifts from family members, or the sale of an asset.
- Seasoning Requirements: Many loan programs, especially conventional ones, may require that the down payment funds be “seasoned” in the borrower’s account for a certain period, often 60 days or more. This helps confirm that the funds are not a recent loan or a windfall, but rather a legitimate savings.
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Closing Costs:
- Loan-to-Value (LTV) Ratio: The loan-to-value ratio is the ratio of the loan amount to the appraised value of the property. LTV ratio plays a role in determining how much a borrower can finance in closing costs. Higher LTV ratios may have limitations on the amount of closing cost assistance.
- Seller Concessions: In conventional loans with less than 90% down payment, there are restrictions on how much a seller can contribute towards the buyer’s closing costs. Typically, this is capped at 3% of the purchase price.
- Realtor Commissions: If a realtor is willing to contribute a portion of their commission towards the buyer’s closing costs, this arrangement should be clearly outlined in the purchase contract. This contribution can help reduce the cash outlay required from the buyer at closing.
It’s important for borrowers to work closely with their real estate agent, loan officer, and lender to understand these rules and ensure compliance. Documentation is a key part of the process, as transparency and traceability of funds are crucial. Any contributions, be it from a realtor, seller, or other sources, should be properly disclosed and documented in the contract to ensure a smooth and compliant transaction.
These rules may vary depending on the specific loan program, so it’s essential to consult with a knowledgeable mortgage professional who can guide you through the process and help you understand the specific requirements of your chosen loan.
To learn more or apply for a mortgage Call Bill Lavigne 860-585-6285
