Scott Storace - Branch Manager, 100 Pacifica Drive Ste. 140, Irvine CA 92618 NMLS #226339 949.973.0141

"From the minute you call me to the minute we close, I have your back. No hassles, no banker’s hours & quick response times." - Scott Storace

  • Home Loans up to $3,000,000
  • Interest Rate Float Down Option
 

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5% Down Payment Conventional Loan With Gifted Funds

You need a loan with a 5% down payment and the flexibility of a gift. You want to purchase a home but your savings are depleted. You see interest rates are at new lows. You’ve also witnessed home prices decline since 2006. And now that home prices are rebounding you realize that the time to act is now. Does this describe you?

Maybe you’ve determined that FHA will meet these needs. But you’re in the market for a condominium. Then you find out that many condo developments aren’t approved by FHA. What then?

Now all you need is a 5% down payment to get a conventional loan. Better yet, that 5% down payment doesn’t need to come from you! This is a 95% conventional loan with gift funds. This is a unique program, unlike other conventional loans. In addition, condominium approval can be significantly easier with Fannie Mae than with FHA.

Barriers to Entry

So what’ makes this program so unique? It’s the change in their gift requirements. Most conventional loans require a borrower to make a 5% down payment of their own funds before they can use gifted funds.  If your plan is to invest 20% initially then the entire down payment can come from a gift. But the borrower would need to document 5% in personal savings. For prospective homeowners without savings this is another major hurdle.

In cases like this your only option used to be an FHA loan. It has a 3.50% minimum down payment and every penny can be gifted. But at current mortgage insurance prices, the payment premium can be tough to manage.

Gift Requirements

Gift requirements on this conventional program are very simple.

  1. The gift must come from a blood relative. Employers and close friends are not allowed. Fiancees may be allowed on a case by case basis.
  2. Gift funds can be used for primary and secondary homes only. They are not allowed on investment property purchases.

Condo Alternative

If you’re in the market for a condominium with a low down payment then this program must be considered. If you’ve read my previous posts on condo requirements you know that condo developments must be approved. If you want an FHA loan then FHA must review and approve the condo development. Want a conventional loan on a condominium? Then it must be approved by Fannie Mae. The same goes for VA and VA loans.

The lending agency will look at the risk, insurance and financial well-being of the home owner’s association. This process can take weeks of time and cost a fair amount of money with FHA. Therefore, many condo development’s are not approved by FHA. Your options are very limited if you need a low down payment program with gift funds. You can find a condo that is FHA approved. Or you can begin saving money for a down payment on a conventional loan.

That was then and this is now. Now all you need to come up with is an additional gift of 1.50%. The gifted 5% down payment is what’s needed to qualify for this conventional loan. This program is awesome. It opens doors to those with limited assets and a family willing to help.

Scott Storace

 

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