Pooled Savings (Community Savings Funds)
When you’re buying a home, you might need money for the down payment. Sometimes, people save for this in a special way, by putting their money together with others. This is called a “community savings account” or “pooled savings.”
If you’ve been saving money this way, you can use it for your down payment. But, there are a few things you need to show to use this money. First, you need a letter or some kind of official note from the person or organization that takes care of the pooled savings. This note must say it’s okay for you to use the money for your down payment.
Second, you need to show that you’ve been regularly putting money into this fund. This could be through bank statements or records that show your contributions over time.
Let’s imagine a situation where you’ve been part of a community savings group. Every month, you and the others in the group contribute $100 to the fund. When it’s time for you to buy a house, you decide to use some of the money from this fund for the down payment. To do this, you’ll need a letter from the group’s organizer saying you’re allowed to use the money. You’ll also need to show your bank statements that prove you’ve been making these $100 contributions every month.
There’s one more important thing to consider. If you’re required to keep adding money to the pooled savings even after you take some out for your down payment, this ongoing obligation counts as part of your debt. When lenders decide if you can afford a loan, they look at your income compared to your debts, a calculation known as the “debt-to-income ratio.” If you must continue contributing to the community savings, these payments are included in your debts.
For example, if you make $5,000 a month and have other debts that require $1,000 a month, your debt-to-income ratio without the pooled savings contribution might look okay. But if you have to keep contributing $100 a month to the pooled savings, this amount is added to your monthly debts, changing your debt-to-income ratio. The lender will consider this new total when deciding if you can afford a mortgage.
References
For more details, visit Pooled Savings (Community Savings Funds) of the Fannie Mae Selling Guide.