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Mortgage Approval With Late Payments After Bankruptcy and Foreclosure
Can I Qualify For Mortgage With Late Payments After Housing Event And Bankruptcy?
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1 Reply
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Yes, a gift of equity can be used on an FHA purchase. Nonetheless, it is planned to pay the down payment and closing costs. However, some limitations exist when using a gift of equity to discharge debt as part of the transaction.
Here’s what you need to know:
FHA Guidelines:
Down Payment and Closing Costs: The gift of equity may cover a minimum of 3.5% of the purchase price for the down payment and closing costs.
Payoff of Debt: While not explicitly prohibited by FHA guidelines, gifts used for this purpose are less common and may be subject to lender approval or denial based on their own policies; also, if it helps reduce borrowers’ DTI ratio so that they can qualify more easily with their income level, then some lenders might allow it, too.
Lender Requirements:
The lender must ensure that all documentation surrounding gifted equity is accurate. This includes, but is not limited to, an executed letter stating no repayment terms are expected. This is because these funds were given as outright contributions towards ownership interests rather than loans made repayable in cash or kind.
Lenders must also consider whether allowing gifts from sellers’ equities to offset other debts would violate applicable FHA rules. They follow those rules internally before determining whether such action aligns with them.
Approval Process:
Debt payoff through seller contribution credit should be discussed early during negotiations between the buyer & seller parties involved. Additionally, prior written consent must be secured from the prospective mortgagee after reviewing proposed agreement details against established criteria within relevant sections in applicable Federal Housing Administration (FHA) guidelines.
So, in brief:
Ultimately, gifts of equities are most commonly used as down payments or for paying off closing costs when purchasing with an FHA loan. Still, depending upon each mortgage company’s policy, sometimes even debts can be repaid through this method.