Recently I wrote an article titled, “Buying A Home? Down Payment Tips You MUST Know!” That article covered the basics of what to do and what not to do when it comes to documenting a home buyer’s assets.

Last month I processed two files for which proper documentation of assets were extremely burdensome and time consuming. to properly document assets. Mind you, the difficulty was not only for me, the processor, but for the home purchasers as well. A lot of the hassle could have been easily avoided had the home buyers worked with the loan originator to ensure funds were being managed properly.

Here I’ll lay out what occurred with the first of these two files, what resulted from those actions, and what could have been done to avoid the issues.

Names have been altered for privacy concerns.

If you're considering purchasing a home soon, it is critical to understand the documentation requirements to which lenders are subjected in today’s lending environment. Hopefully, this information will save you a lot time and grief as it pertains to the documentation of your down payment monies (referred to as "assets" by your lender).

Many people will be receiving good-sized tax refunds when they file their income taxes for 2013.  Saving enough money to cover the down payment on a home is often the primary stumbling block when people want to become homeowners.  With mortgage rates at or near record lows, it may make financial sense for first-time borrowers to use their tax refunds as a down payment to purchase a home that often carries lower monthly mortgage payments than what they pay in rent.  It also may make sense for people who are currently homeowners to use their tax refunds to enable them to upgrade to other homes.

Even with the present condition of the housing market, it is still possible to obtain a mortgage with a low down payment requirement if you know how to go about exploring the available options.

Conventional Loans

Most conventional loans require a 20 percent down payment, but many lenders now offer conventional loans that require lower down payments -- sometimes as low as 5 percent.  Regardless of the loan type, if the down payment amount is lower than 20 percent, lenders usually require the homebuyer to purchase PMI (Private Mortgage Insurance).  PMI is essentially an insurance payment made to the lender as a means to set off any losses the lender may incur in the event that the monthly mortgage payments are not able to be satisfied.  Many lenders will allow a down payment of as little as 5% if PMI is paid.

When considering the sources of funds for down payment and closing costs, different types of lenders have different rules. Generally, mortgage lenders want borrowers to meet the down payment requirement with funds they have saved because this indicates that the borrower has the discipline to save.  For this reason, some may restrict the amount of the down payment that is provided via other sources.

*Disclaimer – Loan guidelines change often and may have changed; be sure to consult with your lender about current requirements.

The two most common mortgage loans, conventional and FHA, both require a minimum down payment along with proper documentation of these monies. If you desire to use one of these programs, here are a few tips on how to meet guideline requirements.