Which of the following cannot be accepted as a form of down payment?

Which of the following cannot be accepted as a form of down payment?

• A. Gift from relative
• B. Cash advance on Credit Card
• C. 401K advance
• D. Gift from MLO

Answer: (D)

Down payment funds must come from a verifiable source that reflects the borrower’s own funds or an allowed donor, and the source must be properly documented. A gift from a relative is a common and allowable source; it requires a gift letter and evidence that the funds were transferred to the borrower without expectation of repayment. A 401(k) advance or loan is also generally acceptable as a down payment source because it represents the borrower’s own funds that can be repaid to the retirement account, with proper documentation. What cannot be accepted is funds provided by the MLO themselves. The person who arranges or assists with the loan cannot supply the down payment, since that would create a conflict of interest and raise concerns about the borrower's independence and the integrity of the loan process. The donor must be an acceptable third party (often a family member or other eligible donor) and must be documented accordingly.

Down payment funds must come from a verifiable source that reflects the borrower’s own funds or an allowed donor, and the source must be properly documented. A gift from a relative is a common and allowable source; it requires a gift letter and evidence that the funds were transferred to the borrower without expectation of repayment. A 401(k) advance or loan is also generally acceptable as a down payment source because it represents the borrower’s own funds that can be repaid to the retirement account, with proper documentation.

What cannot be accepted is funds provided by the MLO themselves. The person who arranges or assists with the loan cannot supply the down payment, since that would create a conflict of interest and raise concerns about the borrower's independence and the integrity of the loan process. The donor must be an acceptable third party (often a family member or other eligible donor) and must be documented accordingly.