What are the rules for using other's money in a down payment?

Question

Hey BP,

I live in a HCOL area but a fantastic appreciation market -- San Diego, CA. My wife and I both have W2s earning above six figures, between $100-150K to invest in real estate, good to great credit, and a long time table (we're in our early thirties!). With all of this said; I've been interested in MFH in San Diego, but it's expensive with a duplex running anywhere from $700-1.1. While we could probably afford this, I'd like to explore leveraging private money to fund a down payment in addition to our own funds.

Where can I get more information about taking private money - be it from a friend, family member, etc. - and using this in conjunction with our own money for an owner-occupied MFH? I.e. if I wanted to fund half of a $120K down payment and leverage private money for the other $60K, what rules exist?

David Kelly · Answer

Seller concessions - Assuming the appraisal will support a higher purchase price, you can offer more and have them give you seller credits towards the closing costs.

Gift funds - a relative, defined as the borrower’s spouse, child, or other dependent, or by any other individual who is related to the borrower by blood, marriage, adoption, or legal guardianship.  Or your fiancé is eligible as well.

Borrowed money is not allowed for the down payment with conventional financing.

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Thom MacFarlane · Answer

@wayne brooks is correct in that "you can't borrow for the down payment for a conventional or FHA loan."

You can get a gift for a down payment but it must be from a  blood relative or "like" relative  and the you must explain the close relationship and why the "like" relative would give you a gift. a GIFT for downpayment is money given willingly to a buyer without repayment.

You cannot get a loan for the down payment as all funds for down and closing are traced and sourced for the preceding 3 months.

Thus no equity share or borrowing the down payment for a conventional or FHA loans.

Wayne Brooks · Answer

You can’t borrow part of the down payment for a conventional or fha loan.