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When getting an FHA loan, the down payment is one of the most important parts of the process. The FHA requires a minimum down payment of 3.5% of the purchase price. This down payment cannot come from just anywhere – the funds must be “seasoned” in your bank account for a certain period of time. In this article we’ll explain what it means for an FHA down payment to be seasoned and why it’s required.
What is a Seasoned Down Payment?
A “seasoned” down payment simply means that the funds have been in your bank account for a certain amount of time – usually at least 60 days
Here are some key things to know about seasoned down payments for FHA loans:
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The money must come from your own funds, not borrowed funds. Gifts are allowed, but must also be seasoned.
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Lenders want to verify that the money has been yours for awhile and that you haven’t borrowed it right before applying for the mortgage.
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Seasoning shows that you have saved the money and haven’t just deposited it right before applying.
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The lender will review 2 months of bank statements to verify the funds have been seasoned for 60+ days.
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The amount of time needed can vary by lender, but 60 days is typical. Some lenders may require even longer seasoning periods.
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All funds for the down payment and closing costs must be seasoned – not just the minimum 3.5% down.
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The seasoning period applies to all types of bank accounts – checking, savings, CDs, etc.
Why is Seasoning Required?
FHA lenders want to see seasoned funds for a few important reasons:
1. Prevent Borrowed Down Payments
By requiring seasoning, it prevents borrowers from borrowing money right before closing to come up with the down payment. The FHA doesn’t want buyers using unsecured loans or gift funds that have to be paid back.
2. Verify Savings Habits
Seasoned funds help verify that the borrower has accumulated savings over time and has money management skills. This reduces risk of default.
3. Avoid Down Payment Fraud
Seasoning helps cut down on down payment fraud where borrowers falsify bank statements to make it look like they have enough savings for the down payment when they really don’t.
4. Ensure Borrower is Invested
When a borrower uses their own seasoned funds, it shows they are financially invested in the home purchase. This “skin in the game” helps incentivize keeping up with mortgage payments.
5. Follow FHA Guidelines
Seasoned funds are explicitly required in the FHA’s handbook and loan guidelines. So lenders must follow these seasoning rules to approve FHA-insured loans.
As you can see, seasoning down payments is an important requirement that benefits both borrowers and lenders. It’s a key part of making sure FHA loans remain low-risk for the lender and affordable for the borrower.
Are Gifts Allowed for the Down Payment?
Yes, you are allowed to use gift funds for all or part of an FHA down payment from a relative, nonprofit, employer, etc. However, these gift funds must also be seasoned per FHA requirements.
Here are some key gift fund rules:
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Gifts must be documented with a gift letter signed by the donor.
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Gift funds must be deposited and seasoned for 60+ days along with your own funds.
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The donor cannot be reimbursed for the gift funds you receive.
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Gifts can come from relatives, a nonprofit, employer, or local government.
So you can use gift funds, but make sure they are deposited well ahead of time so they can be properly seasoned along with your own savings.
What if I Don’t Have Seasoned Funds?
If your down payment funds aren’t seasoned, you may have a few options:
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Wait to apply – Simply wait and save until you have seasoned funds for 60 days or longer.
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Re-verify later – Proceed with the application, but let the lender re-verify your accounts later once the funds are seasoned.
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Apply with gift funds – If possible, use gift funds from a donor and make sure they are seasoned.
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FHA alternatives – Consider FHA alternatives like conventional 97 loans that may have different requirements.
The best approach is to start saving early and make sure you have had the down payment funds in your accounts for at least 2 months before applying for an FHA loan. This will ensure there are no issues with the seasoning requirements.
Tips for Seasoning Your Down Payment
Here are some tips to make sure your FHA down payment will meet seasoning requirements:
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Start saving early – open a dedicated savings account several months before applying.
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Avoid large deposits – large lump-sum deposits could raise red flags. Make smaller, regular transfers.
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Don’t move funds between accounts – pick an account and keep money there during seasoning period.
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Talk to your loan officer – ask for guidance to make sure your funds will be properly seasoned.
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Get statements ready – have 2 months of statements ready to document seasoned funds.
Following FHA seasoning requirements is crucial for a smooth homebuying process. By understanding these rules and planning ahead, you can make sure your down payment is seasoned and verified appropriately. Check with your lender and start saving early!
What are mortgage seasoning requirements?
Exact seasoning requirements depend on the type of mortgage seasoning you’re after: saving for a down payment, qualifying for a refinance or qualifying a mortgage after a bankruptcy or foreclosure.
Most lenders require that money for a down payment and other upfront expenses has existed in an established account belonging to the borrower for at least 60 days. This shows a lender that the funds didn’t come from a temporary or fraudulent source. It also helps the lender discern that you didn’t borrow the funds, as the seasoning period allows a new loan time to appear on your credit history.
To prove that you’re using your own money for the down payment, lenders expect you to share your past two months of bank statements, and if applicable, proof of where any large deposits originated. For example, if you sold some investments or borrowed money from your 401(k), you’ll need to show your lender financial statements documenting that you liquidated the assets and transferred them to your bank.
Why do lenders require seasoning?
In the context of down payment funds or refinances, lenders use mortgage seasoning for a few reasons. These include:
- Establishing the creditworthiness and financial stability of prospective borrowers
- Avoiding borrowers who may be attempting to engage in mortgage fraud or may have obtained the money for a down payment through illegal means
The longer you spend saving money for a down payment, the logic goes, the more likely that you earned the money yourself through legitimate means — and that you can take on the responsibility of a mortgage payment. And the longer you make payments on a loan, the better qualified you are, from a lender’s perspective, to take on a refinance.
In the context of a bankruptcy or a foreclosure, seasoning requirements are meant to ensure a prospective borrower has solidly rebuilt their finances before applying for a mortgage.
Down Payment Funds Have to come through a seasoned account NOT FROM THE SAFE IN YOUR HOUSE!
FAQ
What is the seasoning rule for FHA?
Payment history/mortgage seasoning requirement: Borrowers must have made at least six payments on the FHA-insured mortgage that is being refinanced, at least six months must have passed since the first payment due date of the FHA-insured mortgage that is being refi- nanced, and at least 210 days must have passed from …
Does down payment money have to be seasoned?
Down payment seasoning
Most lenders require that money for a down payment and other upfront expenses has existed in an established account belonging to the borrower for at least 60 days. This shows a lender that the funds didn’t come from a temporary or fraudulent source.
What are the rules for FHA deposit?
FHA loan rules require the borrower to make a minimum down payment of 3.5% of either the appraised value of the property or the asking price of the home, whichever amount is lower. This down payment must be paid up front and cannot be included in the cost of the home loan.
How much do I need to make to buy a $300K house with an FHA loan?
To buy a $300K house, you’ll generally need to earn a household income around $80,000 per year, assuming 20% down, a 6.5% interest rate, and moderate existing debts.