Down Payments - How Much Do You Need & Where Does the Money Come From

Down payments for mortgages is always a topic for mass confusion. Allow me to clarify a few key points here:

How much do you need?

- anything over $1,000,000 in purchase price requires a minimum of 20% down on the entire price. It doesn't matter if it's your first property, 50th property, rental, primary residence or if your income is 2 mil per year. It's 20% down flat. This is due to the fact that insurers do not touch properties at this price point. (note: exception is in the multi-family game but that's beyond this post)

- if you are buying a rental property, you also need 20% down. This again is due to the fact that insurers do not insure rental properties. The exception however is if the property is an "owner occupied rental" ie: duplex, triplex or fourplex in which the purchaser/borrower will live in one of the units. 5% min down on duplex, 10% min down on 3 or 4 units.

- Anything being purchased for primary or secondary use can be purchased with as little as 5% down on the first $500,000 and 10% on the remainder up to $1,000,000. Note: You still may need to put more money down if your income/debt ratios are out of line. These are simply the minimum down payments that you "could" qualify for.

Down Payment Myth - Putting 5% down or more has nothing to do with being a first-time buyer. Absolutely nothing. It has to do with property use and if your income/debts qualify under lender rules and guidelines.

Where can the down payment come from?

Aside from the obvious source of personal savings, there are several other common sources of down payments and some not-so-common sources:

1. Gifts - must be from an immediate family member. Lenders do not accept gifts from your buddies or Tinder dates as legitimate

2. Borrowed funds - money accessed from a HELOC is widely accepted so long as your income can afford the additional payment on the borrowed debts. Unsecured borrowed funds are generally not allowed however unless the file is super strong and the lender/insurer grants an exception.

3. Sale of property/assets - Sale of property, car, personal affects are certainly allowed so long as there is a paper trail. I once had a client sell a cow for the down payment. It worked - as we had all the paperwork in order. Mooooove-over baby.

4. Flagged countries - lenders disallow funds coming from a variety of nations at any given time. This is mostly political but a rule nonetheless. Currently, monies coming from Syria, North Korea, China (to an extent), Sudan, India (to an extent) and a few others are immediately blocked.

Down Payment Source Myth - you do not need to have your down payment in hand for 90 days. That is not the rule. The rule is that if the funds are in your account for less than 90 days, you simply need to provide legitimate proof of source. After 90 days, no proof of source is generally required.