Using vehicle loan for FHA down payment / closing costs?

jaymel · Joined: 20 Jun 2009 Posts: 2

We are looking to purchase a new home, and wondered if it is okay to use proceeds from a vehicle loan (using vehicle as collateral) for a down payment and closing costs? I read online that as long as the loan is secured by property, it is okay to use for the down payment. However, now I'm hearing this is no longer the case. Can anyone clarify this for me? Thanks!

m2c · Joined: 03 Aug 2005 Posts: 937

“Not really” but the door is open a crack … at least used to be. I have seen refinancing of cars used in the past under the “old” 4155 – 2-10 D “Collateralized Loans. Funds can be borrowed for the total required investment as long as satisfactory evidence is provided that the funds are fully secured by investment accounts or real property. Such assets may include stocks, bonds, real estate (other than the property being purchased), etc.” Wording in the “new” 4155.1 5.B.7.a is basically similar but the “etc.” has been dropped.

The former “etc.” was what raised the carrion call that borrowing against ANY secured asset was OK. I’ve seen it work years ago but a clear reading of even the old paragraph would indicate FHA never intended borrowing against short-term and in most areas of the county, work-essential assets was desirable. The political winds (bags) have shifted from the “old Barney” to the “new Barney” and I don’t see this passing muster today. Your best argument is would be if you just bought your Cadillac a couple months ago and wrote a check for $40,000 since you didn’t want to be hassled filing out a loan application. You’d still be left with the FICO-barrier issue if you were close on the mortgage application credit report FICO and the car borrowing was to occur later.

You could play the timing game and take the car loan out a couple months before applying for the mortgage loan you I’m not sure you’d be doing yourself a favor. Think of it this way – at your existing income/debt structure you haven’t been able to saving even the 3.5% down payment amount required. Now you’re considering borrowing more and making your debt-to-income relationship worse.

EricJ · Joined: 09 Jan 2009 Posts: 321 Location: New Jersey

Thanks for the explanation m2c....

jaymel · Joined: 20 Jun 2009 Posts: 2

Thanks for the response!