The Federal Reserve says that 13 percent of all U.S. households do not have savings or checking accounts. This is a huge disadvantage when trying to qualify for a mortgage. Cash down payments are not allowed by Fannie Mae -- period. Freddie Mac makes exceptions for applicants who have no savings or checking accounts. FHA does allow them if the funds are documented properly.
Show Them the Money
The big problem with a cash down payment is proving that the money is yours and didn’t come from an unacceptable source – anyone who gains materially from the property sale. One way of documenting that you have saved the money yourself is a worksheet showing your income, expenses, and what is left over for savings. This shows that it is possible for you to save what you claim to have saved.
Next, you must deposit the cash with a bank, investment firm or an escrow agent. You also need to explain how you saved the money (here’s where your worksheet comes in) and over what time period. The story and numbers must be believable -- if you have $30 left each month after you pay your bills, no one will believe that you saved $20,000 in five years.
FHA underwriting guidelines note that applicants with checking or savings accounts don’t normally have “mattress money,” so if you have these accounts, your story about the cash had better be very good!
If you get your down payment by selling something like a car, jewelry or collectables, you must prove that you owned the asset in the first place and that you sold it (provide a copy of the bill of sale, for example). Document the item's worth -- your car's value can be established with the Kelly Blue Book, and jewelry can be valued by a GIA-approved appraiser. If your sales price exceeds the appraised value of the item, underwriters will only consider the lower amount.
If your cash comes from a gift, that’s okay for many programs (FHA, for example). Once again, however, you’ll need to prove that the gift came from an acceptable source, not someone with an interest in the home sale. The giver has to show that he or she had the money to give you and that the money was transferred to you. You’ll also need a letter saying that the money is a gift and does not need to be repaid.
A cash down payment doesn’t make your life easier, but buying a home and getting a mortgage is still possible.