Can I use part of my student loan or grant for closing costs?

[Anonymous]

I received $6,700 in financial aid for the Summer 2015. $2,200 went toward tuition costs and the remaining $4,500 was direct deposited into my bank account by my school. I want to use the $4,500 financial aid disbursement toward closing costs for a new home. I know that financial aid can be use to cover housing expenses, but I am not sure if this qualifies. My loan officer is unsure and is waiting to find out from the underwriter if I can use the $4,500 or not. I applied for an FHA loan.

 Can I use the $4,500 student loan disbursement toward closing costs? $1,600 of the $4,500 was in the form of educational grants, is this considered a gift? It's not a loan and not borrowed.

[StartingOver10]

You can not use a student loan for your down payment because it is borrowed funds. I am not sure about the grant though - it's possible that since those funds do not need to be repaid you might be able to use them. Were there restrictions on the use of the grant? Did it come in a separate check so you can show which funds were borrowed and which are from a grant? 

Hopefully a LO can pop in on this thread and give you better answers.

[Anonymous]

How long has the $4500 been in your bank account? If it's been in there for a few months the $4500 deposit is not going to show up in the bank statements you supply to your lender. When I turned over my most recent two full bank statements to the lender no one asked me where all that money came from. The only deposits that showed up on the statements were my usual employment direct deposits. The lender does not make you account for every penny you currently have in the bank - you only have to explain unusual deposits on your last few statements (in my case, two months of statements).

[StartingOver10]

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@Anonymous wrote:

How long has the $4500 been in your bank account? If it's been in there for a few months the $4500 deposit is not going to show up in the bank statements you supply to your lender. When I turned over my most recent two full bank statements to the lender no one asked me where all that money came from. The only deposits that showed up on the statements were my usual employment direct deposits. The lender does not make you account for every penny you currently have in the bank - you only have to explain unusual deposits on your last few statements (in my case, two months of statements).

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Marlena,

I understand your point, however, it is considered mortgage fraud for the buyer to claim that he has not borrowed funds for the down payment when in fact he did borrow the funds. That question is always asked. The grant money is not borrowed funds, but the rest of his funds were borrowed and have to be repaid.

[Anonymous]

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@StartingOver10 wrote:

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@Anonymous wrote:

How long has the $4500 been in your bank account? If it's been in there for a few months the $4500 deposit is not going to show up in the bank statements you supply to your lender. When I turned over my most recent two full bank statements to the lender no one asked me where all that money came from. The only deposits that showed up on the statements were my usual employment direct deposits. The lender does not make you account for every penny you currently have in the bank - you only have to explain unusual deposits on your last few statements (in my case, two months of statements).

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Marlena,

I understand your point, however, it is considered mortgage fraud for the buyer to claim that he has not borrowed funds for the down payment when in fact he did borrow the funds. That question is always asked. The grant money is not borrowed funds, but the rest of his funds were borrowed and have to be repaid.

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Ah, OK. My bad. Maybe they didn't ask me that question because I had no downpayment. Mine was a VA loan. They checked my account balances to make sure I had 3 months reserves, but never asked where the money came from.

Sorry, OP! Ignore me. Of course if they ask you about borrowed funds for a downpayment, tell them exactly where the money came from and let them take it from there.

Sorry again!

Marlena

[Anonymous]

Thanks everyone for your feedback. So, my loan officer advised me that I cannot use the student loans for closing costs. Also, because I co-mingled the student loan funds with my private funds I can't use any of the funds in my bank account. My recommendation to students looking to buy a house is to avoid the co-mingling of financial aid and private funds. Keep them separate! If you don't , it will be difficult to verify the funds for closing which will lead to the loan application being denied. Regardless if the financial aid was loans or grants, the funds are difficult to verify and can't be used for closing.

[StartingOver10]

Maybe one of the other LOs will pop in - don't you have another way to show how much was grant money and how much was a student loan? Any sort of paperwork that might show the amount of each?