Cash to close is a significant part of the FHA loan process, and understanding the guidelines can help ensure a successful loan application.
Cash to close is the total amount needed to complete a home purchase or refinance transaction. It includes down payment funds, closing costs, prepaid interest, and any other fees the lender may require in order to process and close the loan. The total amount will depend on the loan program being used and the circumstances of the borrower and the property.
For FHA loans, cash to close must be from an acceptable source. Acceptable sources include the borrower’s own funds, a gift from a family member or friend, a grant, a loan from a non-profit organization, and other authorized sources. It is not permissible to use funds from the sale of personal assets, such as a car or furniture, to finance the purchase, unless the proceeds are deposited into the borrower’s bank account at least 60 days prior to the loan application.
In addition, the FHA requires that cash to close must be sourced and properly documented. All source documents must be provided to the lender as part of the loan application process in order to ensure that the funds used are legitimate. This includes proof of deposit, such as a bank statement showing the deposit of funds.
Finally, the FHA requires that all cash to close must be verified by the lender. This means that all funds used must have originated from an acceptable source and must be verifiable through source documentation. There must also be evidence that the funds were deposited into the borrower’s bank account in sufficient time to be considered liquid and ready for closing.
In summary, cash to close is an important consideration as part of the FHA loan process. It’s essential that borrowers understand the guidelines surrounding acceptable funds, sourcing and verification requirements, and the importance of proper documentation. By taking the time to understand the FHA loan rules and regulations related to cash to close, borrowers can set themselves up for a smoother loan closing process.
FHA loans are mortgages that are insured by the Federal Housing Administration and are available to assist homebuyers and homeowners with limited access to traditional mortgage lenders. Cash to close is a significant portion of the FHA loan process and must be done with acceptable sources of funds, properly sourced and documented, and verified by the lender. Funds must come from an approved source such as the borrower's own funds, a gift from a family member or friend, a grant, a loan from a non-profit organization, or other allowed sources. Funds cannot originate from the sale of personal assets like a car or furniture unless the proceeds have been deposited into the borrower’s bank account for at least 60 days prior to the loan application. Source documents providing evidence of the funds being deposited must be provided to the lender to verify their legitimacy. Finally, the lender must verify that all funds used for cash to close are legitimate and able to be used in closing the loan. Taking the time to understand the FHA loan rules related to cash to close can streamline the loan closing process and make it easier for everyone involved.
This article was contributed on Jul 25, 2023