Are borrowed funds acceptable as a down payment source for a mortgage?

Asked by Erin

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Answered by Caroline Gerardo, C G Barbeau in Newport Beach, CA
Any funds you borrow will be counted into your debt to income ratios. You can't go charge on a line of credit or credit card at closing without having disclosed this and provided proof of the terms of the line. All funds that flow into closing have to come from the accounts you designated and you show proof of the wires. Look into grants, gifts, or sell something (all these also need proof and trial of how it came escrow) | 12.01.15 @ 19:54
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$commenter.renderDisplayableName() — {comment} | 12.09.16 @ 13:44
Not all borrowed funds are the same and not all will count in your debt to income.

Secured borrowed funds are allowed. An example of this would be an equity line against another property you may own. This draw and payment must be documented and will count against your debt to income, as Caroline pointed out. But other sources won't count against you.

You can borrow against most 401(k) plans. Check with your plan administrator, but most plans allow for a loan at 5% with a 5 year term. Pay it back on time and no IRS penalties. Even better, this debt does NOT count in your debt to income ratio for a conventional or FHA loan.

Non-secured borrowed funds (such as from a friend) are not acceptable for most investors. In the cases where it may be allowed, you will be hit with the payment in your debt to income and it must be a properly recorded Note. Additional restrictions on the rate, term and allowable balloon will vary by investor. | 04.01.16 @ 18:38
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$commenter.renderDisplayableName() — {comment} | 12.09.16 @ 13:44
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