Rental Property Investor · Madison, WI · Member since 2018 · 20 posts · 5 votes
Hello BPers,
I can't thank BP enough for the motivation it gives me every day to pursue my real estate dream. It is a great platform to learn and be motivated.
I'm in a situation where I'm under contract on a SFH and I'm little short of funds. I haven't talked about it with my lender yet but I've read online that gift/borrowed money from friends and family will not be approved by the underwriters under Fannie Mae or Freddie Mac guidelines. As the lender usually asks for 60 days of bank statements to make sure the funds are mine, how can I show the money I received in the proof of funds.
Has anyone been in a similar situation before? Please help.
@ Ratna E. You can use 401k funds for down payment or if you have HELOC which you can use as down payment. Your IRS refund will be consider as seasoned funds.
@ Ratna E. You can use 401k funds for down payment or if you have HELOC which you can use as down payment. Your IRS refund will be consider as seasoned funds.
@Ratna E. Not sure if this is a primary residence or investment property.
Assuming this is an investment property; you can get gift letter from your parents or a family member or a friend. The letter should say this is down payment gift and not a loan to be paid back. This has to be documented properly. May be you can re confirm with your lender in this regard. Some times there is a limitation from the lender on how much dollar amount is acceptable based on the various factors including the purchase price and amount of down payment needed.
@Harjeet Bhatti Thank you for the response. I don't have a 401K and I'm also not looking to cash out refinance my other properties which at this moment doesn't hold much equity. I'm assuming HELOC comes with certain fees and also my monthly payments will increase. Please correct me if I'm wrong.
@Saravanan Saravanan Thank you for the response. Yes, this is an investment property with 20% down. I will definitely talk to my lender about the limits they have on the dollar amount I receive as gift that I can use for down payment.
Are there any other ways? Can I borrow money from family and friends and tell the lender that they are returning the money they owe me? Appreciate your help!
@ Ratna E. The option was if you have already HELOC which is open on your credit. Although you can open HELOC but according to your loan scenario you already sign purchase contract.This is investment property you can't have gift from any one. The other option will bring partner on this loan who has the funds.
@Ratna E. You could consider applying for/ using a zero down credit card that supplies checks/ cash advance. For example a credit card that I can write a check from for a 3% fee and no other interest for 18 months.
You would need to be very careful to consider whether or not you could easily pay that back before interest kicks in.
Alternatively I would say don’t buy until you have the cash. Either you’re not financially ready or this is not the right deal for you.
I can't thank BP enough for the motivation it gives me every day to pursue my real estate dream. It is a great platform to learn and be motivated.
I'm in a situation where I'm under contract on a SFH and I'm little short of funds. I haven't talked about it with my lender yet but I've read online that gift/borrowed money from friends and family will not be approved by the underwriters under Fannie Mae or Freddie Mac guidelines. As the lender usually asks for 60 days of bank statements to make sure the funds are mine, how can I show the money I received in the proof of funds.
Has anyone been in a similar situation before? Please help.
Thanks,
Ratna
You say you are short, are you short on downpayment/closing costs or short on reserves? Remember lender probably want 6 months of reserves, so be sure that is factored into how short you are.
If it is just a matter of seasoning funds you could look into private, commercial , HML. They probably won't have seasoning on funds. But it will cost more and may be shorter term.
@Harjeet Bhatti It is just a matter of $5k-$10k of funds for closing. I don't want to involve a partner for this deal.
@Yvonne H. Sure, I will definitely consider doing a cash advance from a credit card. Will the sudden increase of $10k in my debt balance effect by chances of loan approval?
@Caleb Jordan I'm short of $5k-$10k on closing costs. I have the 6 months of reserves covered. I have couple of friends who are willing to lend me the money. Question is, will the lender approve the money I borrowed during the under writing phase?
When I bought a two flat in Chicago, our lender was satisfied with a LOE stating funds ($25k) were gifts to my wife and I (12,500 each). Perhaps that is because we were going to live in one of the units after rehab, so not a true investment property.
Could your form a partnership with the friends and family then buy them out when you get your funding together?
@Harjeet Bhatti It is just a matter of $5k-$10k of funds for closing. I don't want to involve a partner for this deal.
@Yvonne H. Sure, I will definitely consider doing a cash advance from a credit card. Will the sudden increase of $10k in my debt balance effect by chances of loan approval?
@Caleb Jordan I'm short of $5k-$10k on closing costs. I have the 6 months of reserves covered. I have couple of friends who are willing to lend me the money. Question is, will the lender approve the money I borrowed during the under writing phase?
@Harjeet Bhatti has answered your question in detail. If you get a credit card advance during your mortgage it will affect your credit rating and DTI. The lender will re pull your credit before closing and if they see this and re calculate you could be screwed. You should have had all this taken care of before signing. If you have 401K take monies from there and if you have no other option pull out of the deal before you lose your escrow deposit!
@Ratna E. For your info and others who suggested getting a gift for an investment...
Out of FNMA guideline which is readily available on their website.
Gift Funds:
A borrower of a mortgage loan secured by a principal residence or second home may use funds received as a personal gift from an acceptable donor. Gift funds may fund all or part of the down payment, closing costs, or financial reserves subject to the minimum borrower contribution requirements below. Gifts are not allowed on an investment property.
Also you said that you’re short by $5K-$10K, and I’m not sure how big of a loan you are borrowing, but to bridge some of the shortage-if the property is currently tenant occupied, have the security deposit credited to you on your Closing Disclosure plus the prorated monthly rent.
Additionally, ask the lender to up the rate and give you a lender credit. Yes, it’ll probably lessen your cash flow but it’s another way to get you to the gap.
There are no limit on how much lenders can pay towards your closing costs as long as you are meeting your minimum down payment and credit does not exceed your closing costs.