Don’t Let a Simple Mistake Derail Your Home Loan Approval
When you’re preparing to buy a home, it’s natural to get creative when pulling together the cash you need. But before you tap into that credit card or unsecured loan, here’s something every borrower needs to know:
Conventional and FHA mortgage guidelines strictly prohibit the use of unsecured funds for your down payment, reserves, or closing costs.
What Are Unsecured Funds?
Unsecured funds are those that originate from a source not backed by collateral. In the eyes of lenders, these funds represent borrowed money that increases your debt burden and puts your financial position at greater risk.
Examples of Ineligible Unsecured Sources:
- Credit card cash advances
- Personal lines of credit
- Unsecured personal or signature loans
- Overdraft protection from your bank
- Loans based on goods or furniture you own
Why Does This Matter for Your Loan?
When lenders underwrite your Conventional or FHA loan, they must verify that all funds used to buy the home are legitimate, traceable, and not borrowed without collateral. Using ineligible funds could lead to:
- A loan denial, even late in the process
- The need to re-source your funds, delaying your closing
- A flag on your file for future applications
What You Can Use for Your Home Purchase
Here are acceptable sources of down payment and closing funds:
- Personal savings or checking accounts
- Gifts from family (with a signed gift letter)
- Secured loans backed by assets
- Retirement account withdrawals (in some cases)
- Proceeds from the sale of a verified asset
If you’re saving money to buy a home, ensure it’s from approved, secured, or gifted sources. Contact us, and we’ll be with you every step of the way, ensuring your loan is pre-approved and qualifies for our Champion Loan programs.
