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Using Personal Sale Proceeds for Home Buying: A Complete Guide

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Hi Phil and Ryan,

I sold a car and some collectibles to help pay for a new house. I'm trying to figure out how to use this money for the down payment and other costs. The rules from different mortgage places like Fannie Mae, Freddie Mac, FHA, USDA, and VA loans seem complicated.

Can you explain what I need to do to make sure I can use this money for my house? I want to know how to show the value of what I sold, how to properly document the sale, and how to avoid any problems with the loan because of this money.

Thanks for any help you can give. I really want to make this work.

Chris J.

Expert Answer: Hi Chris, here's what you need to know about using sale proceeds to finance a home.

Steps to Use Sale Proceeds for Home Loans

If you're looking to use the money you got from selling personal items like a car or collectibles to help buy a home, you're in a good position, but it's important to follow the right steps to make sure lenders give the thumbs up.

First off, gather all your documentation. This means any bills of sale, transfer documents, or receipts that prove you sold these items. It's like putting together a story of the sale that anyone can understand.

Next, get an appraisal or a value estimate for more expensive items before you sell them. If you're selling a car, a statement from a dealership works. For collectibles, look for an expert's valuation. This helps prove to the lender that the sale was legit and reflects the item's true market value.

Lastly, be ready to explain the sales to your lender, especially if this money makes up a big chunk of your down payment. They may ask questions to ensure everything's above board and the sale wasn't a favor from someone involved in the home purchase.

By keeping everything transparent and well-documented, you're showing lenders you're a responsible borrower. The key is preparation and clarity, making it easier for them to say yes to using those sale proceeds towards your dream home.

A couple in the process of buying a home using personal sale proceeds

Proving Value of Sold Personal Property

When it comes to proving the value of items you've sold, like a car or collectibles, for mortgage purposes, it's all about the evidence. Here’s what you typically need:

For items with a title (think cars, RVs, boats), you should have documentation that not only shows you owned it but also indicates its value.

This might mean having an official guide or appraisal. When you sell the item, you'll need a bill of sale or transfer document showing the sale price and the transfer of ownership to the buyer.

For collectibles or other valuable personal property without a title, the approach is a bit different. You'll want to have a documented appraisal from a reputable source or expert in the field.

This appraisal should give a clear estimate of the item's market value.

In both cases, if the amount you get from selling these items is a significant portion of your income or the funds you're using to qualify for the mortgage, lenders will take a closer look.

They'll want to see that the value you claim for the item is backed up by solid evidence and that the sale is legitimate.

This could mean providing more detailed documentation or evidence of the item's worth and the transaction itself.

Remember, the goal is to show your lender that the sale was legitimate, the valuation is accurate, and the proceeds are rightfully yours to use.

This clarity and documentation can smooth the path to using those proceeds as part of your home-buying plan.

Rules for Cars and Collectibles in Home Loans

When you're navigating the process of using the proceeds from the sale of personal property towards a mortgage, the type of asset—whether it's a titled asset like a car or RV, or a non-titled asset like collectibles—makes a big difference in what documentation you need to provide.

Titled Assets

For titled assets, which include vehicles and boats, you'll typically need to show a clear paper trail.

This starts with documentation of ownership, such as the title itself, and extends to the sale process. A bill of sale is crucial here, as it confirms the transaction and transfer of ownership.

You may also need to provide evidence of the item's value, which could come from an official guide or an appraisal, especially if the sale contributes significantly to your down payment or reserves.

Non-Titled Assets

On the other hand, non-titled assets like artwork, jewelry, or collectibles have a slightly different set of requirements.

Since these items don't have a title to prove ownership, you'll need an appraisal or valuation from a reputable source in the field. This appraisal should ideally reflect the market value of the item.

Then, just like with titled assets, you should provide documentation of the sale, such as a receipt or a written agreement with the buyer, to prove the transaction took place and to document the amount of money exchanged.

Both scenarios share the common goal of establishing the legitimacy of the sale and the value of the asset sold. However, the nature of the asset dictates the type of documentation needed to satisfy lender requirements.

This differentiation ensures that all bases are covered, from proving ownership to substantiating the item's value and the sale's legitimacy, paving the way for the proceeds to be used in your home purchase.

Sale Proceed Guidelines For Conventional, FHA, and VA Loans

There are unique guidelines for using proceeds from the sale of personal property across different types of loans like Conventional (Fannie Mae, Freddie Mac), FHA, and VA loans.

Each has its own set of rules about what's acceptable when it comes to this aspect of your financing.

Conventional Loans (Fannie Mae and Freddie Mac)

For these loans, you're typically required to provide a thorough trail of documentation if you're using sale proceeds as part of your down payment or reserves.

This includes proving ownership of the asset, providing a bill of sale or similar documentation to prove the transaction, and verifying the receipt of funds.

The appraisal or valuation of the asset before sale, especially for high-value items, might also be necessary to justify the proceeds used in the transaction.

FHA Loans

FHA guidelines also require detailed documentation, including a bill of sale and proof of the asset's value through an appraisal or a reputable source's valuation.

Additionally, FHA loans may require you to show that the proceeds have been deposited into your bank account, further linking the sale of the personal property to your financial resources for the home purchase.

The aim here is to ensure that the value of the sold property is legitimate and that the sale proceeds are readily available to you.

VA Loans

VA loans, designed for veterans and their families, also have specific guidelines.

While the VA might be less prescriptive about the documentation needed for non-titled assets, the focus remains on proving that the sale was legitimate and that the proceeds are available for use in the mortgage process.

Documentation of ownership, the sale transaction, and the deposit of funds into your account are essential here as well.

In all cases, the key is to demonstrate that the sale was legitimate, the valuation was appropriate, and the proceeds are genuinely available for use in your home purchase.

Rules and Common Mistakes When Using Sale Proceeds

Ensuring the money from the sale of personal property can be used for your down payment, closing costs, and reserves involves a few important steps and awareness of certain restrictions.

First, it’s about documentation and traceability. Make sure you have a clear record of the sale, including a bill of sale or receipt, and proof that the proceeds have been deposited into your bank account. This provides a direct link between the sale and your financial resources.

Moreover, timing can be crucial. Some lenders may have guidelines on how long the funds from the sale need to be in your account before they can be used for the mortgage process. This is often to ensure the stability of your financial situation.

Restrictions to be aware of include the source of the funds. If the buyer of your property has a relationship with the real estate transaction (e.g., a relative or business associate involved in the home purchase), it might raise questions about the legitimacy of the sale. Lenders are vigilant about transactions that could artificially inflate the buyer's financial standing.

Lastly, if the proceeds from the sale represent a significant portion of your income or assets, be prepared for additional verification steps. Lenders may require more detailed appraisals or evidence to ensure the sale and the value of the sold property are legitimate.

Handling Large Sales and Your Income

When selling high-value items or if the sale represents a significant portion of your monthly income, you'll need to take extra steps to ensure the transaction meets lender requirements.

This includes obtaining an independent appraisal to confirm the item's market value, which is especially important for significant transactions.

Documentation proving your ownership and the details of the sale, such as a bill of sale, is crucial to establish the legitimacy of the transaction.

After the sale, make sure to document the deposit of the proceeds into your bank account with deposit slips or bank statements.

This helps verify the source of the funds. If the sale significantly affects your income, be prepared to explain its impact on your financial situation to lenders.

Additionally, verify that the buyer of your item has no connection to the property sale or mortgage transaction to avoid potential conflicts of interest.

Properly addressing these considerations will help ensure the proceeds from your sale are accepted by lenders for your home purchase.

Bottom Line

Leveraging the sale of personal items like your car and collectibles for your home purchase is a smart move. Here’s a quick recap to ensure these funds boost your buying power:

  • Document Everything: Save all sale-related paperwork, including receipts and bank deposit evidence.

  • Valuate High-Value Items: Obtain appraisals for expensive items to justify their sale price.

  • Discuss with Lenders: Be upfront with your lender about using these proceeds, providing detailed documentation when asked.

While managing mortgage guidelines can seem complex, focusing on these essential actions simplifies the process. At MakeFloridaYourHome, we're here to help navigate this journey.

Ready to use your sale proceeds for a home in Florida? Contact MakeFloridaYourHome today. Let’s make your dream home a reality, ensuring a smooth transition from sale to purchase.

With over 50 years of mortgage industry experience, we are here to help you achieve the American dream of owning a home. We strive to provide the best education before, during, and after you buy a home. Our advice is based on experience with Phil Ganz and Team closing over One billion dollars and helping countless families.

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