How to Use Employer Relocation Funds for a Down Payment to Buy a House

A relocation package from your employer can do a lot more than pay for movers, temporary housing and a flight to your new city. If your employer provides money through an established relocation assistance program, those funds may be used toward the down payment and closing costs when you buy a house.

We recently helped a borrower relocate from the Chicago area to Austin for a new position with a technology company. He purchased a home for approximately $800,000 and used funds provided by his employer as part of the money needed to close. He had straightforward salaried income, so the mortgage itself was conventional. The important part was understanding how Fannie Mae treats employer assistance and documenting the relocation funds correctly.

Yes, Employer Relocation Funds Can Be Used for a Down Payment

Fannie Mae allows eligible employer assistance to fund all or part of the down payment and closing costs on a primary residence.

That can be a major benefit for someone moving for work. A buyer may already have enough savings to purchase the home, but using $30,000, $50,000 or more from an employer relocation package means keeping that same amount in savings or investments rather than committing additional personal cash to the purchase.

Employer assistance can be structured in several ways, including:

• A grant: Money provided by the employer that does not need to be repaid.
• A forgivable loan: Money that may not need to be repaid if the employee satisfies certain conditions.
• A deferred-payment loan: Repayment is delayed according to the terms of the employer's program.
• A fully repayable loan: The employer provides the money, but the employee is required to pay it back.

The structure matters. If the funds must be repaid, the lender needs to understand those terms and determine whether the obligation needs to be included when qualifying the borrower.

For a one-unit primary residence, Fannie Mae does not require the borrower to make a separate minimum contribution from their own funds simply because employer assistance is being used. Properly documented employer assistance can potentially provide all of the money needed for the required down payment and closing costs.

That makes a generous relocation package considerably more valuable to someone who plans to buy a home after moving.

Fannie Mae Documentation Requirements for Employer Relocation Funds

The money cannot simply appear in your checking account with a memo saying "relocation."

Fannie Mae requires the lender to document that the assistance comes from an established company program rather than a special arrangement created for one particular employee. The underwriter also needs to understand exactly how the program works.

The lender must document:

• That the employer assistance is part of an established company program. It cannot simply be an accommodation developed for one employee.
• The dollar amount of the assistance. The employer should clearly state how much money is being provided.
• The terms of any loan. If the employer assistance is an unsecured loan, the lender needs an award letter or legal agreement outlining the terms and conditions.
• The terms of the relocation benefits or other assistance. The documentation should explain what the borrower is receiving and under what conditions.
• That the money came from the employer. The lender needs evidence that the borrower received the funds directly from the employer or through an employer-affiliated credit union.

For a legitimate corporate relocation program, none of this should be difficult. It simply needs to be collected and presented correctly.

How We Used Employer Relocation Funds for an $800,000 Austin Home

The borrower we recently helped was moving from the Chicago area to Austin for a new position with a technology company.

His employer provided relocation assistance through an established employee program. We received a letter from the employer confirming that the payment was part of the company's relocation assistance program and that it was available to employees who met the program's requirements.

We also obtained the company's written relocation policy and a verification of employment confirming that our borrower qualified for the benefit.

The employer had already paid the relocation funds directly to the borrower instead of wiring the money to the title company. That was completely workable, but it meant we needed to document one additional step.

We obtained the borrower's asset statement showing receipt of the funds along with confirmation from the employer showing that it had made the payment.

The paper trail was straightforward:

Established employer relocation program → employee meets the requirements → employer approves the benefit → employer pays the funds → borrower receives the funds.

With that documentation in place, the relocation money became part of the funds available for the approximately $800,000 Austin home purchase.

For professionals moving to Austin for a new job, that can significantly reduce how much personal cash needs to be used for the down payment.

Document the Relocation Money Before It Reaches Your Bank Account

An employer can handle relocation assistance in several ways. The company may send money directly to the title company, pay certain expenses on the employee's behalf or deposit the relocation benefit directly into the employee's bank account.

The last option is common, but it makes documentation particularly important.

If a $40,000 employer relocation payment suddenly appears on the bank statement you plan to use for closing, the lender may need to verify where it came from. Without documentation, the underwriter sees an unexplained deposit. With the employer relocation agreement, proof of payment and bank statement, the source of the money is clear.

If you know you are receiving relocation assistance, keep the award letter, written relocation policy, employer correspondence and proof showing when and how the money was paid.

Better yet, send the relocation package to your mortgage broker before the funds move. A broker who understands the guidelines can tell you what documentation will be needed before the file reaches underwriting.

You May Be Able to Buy a Home Before Your New Job Starts

The down payment is only one piece of buying a house while relocating for work. The other major question is whether you can qualify using income from a job you have not started yet.

For many salaried employees, the answer can be yes.

Fannie Mae has guidelines that can allow a borrower to qualify using income from a new job when the employment and compensation are properly documented and the applicable timing and reserve requirements are satisfied.

That means a borrower moving to Austin for a job that begins shortly after closing does not necessarily need to rent for several months just to create a history of paystubs.

A signed employment offer showing the employer, position, salary and start date may allow a relocating borrower to move forward with the mortgage before receiving the first paycheck.

This is one of the reasons buying a home while relocating for work can be much easier than people expect. Mortgage guidelines already contemplate employees moving between cities for new jobs.

How Much Do You Need for a Down Payment When Relocating?

Using employer relocation funds does not change the underlying down payment requirements for your mortgage. It changes where some or all of the money can come from.

For conventional loans, eligible borrowers may be able to buy a primary residence with as little as 3% down, while 5%, 10% and 20% down are all common depending on the borrower's profile and goals. Putting 20% down can eliminate private mortgage insurance, but there is no reason to assume that 20% is automatically the right choice simply because you have the money available. Our broader mortgage down payment guidelines explain how the requirements change based on the loan, property and borrower.

That flexibility makes employer relocation assistance especially useful. If your company gives you enough money to cover most or all of a 5% or 10% down payment, you may be able to buy the new home while leaving considerably more of your own savings untouched. A borrower with substantial cash could still decide to put more down for better pricing or a lower monthly payment, but that becomes a financial decision rather than something forced by the move.

The same idea applies once the loan moves into jumbo territory. Jumbo buyers frequently assume they need 20% down, but many programs allow significantly less. Depending on the loan amount, credit profile, reserves and lender, jumbo mortgages with lower down payments can allow a relocating borrower to purchase a higher-priced home without committing an unnecessarily large amount of cash.

This is where the relocation package should be considered as part of the overall mortgage structure. The question is not simply whether your employer's money can be used. It is how much should be used, how much you should contribute personally and how much liquidity you want to preserve after the move.

Conventional Loans Are Often the Best Fit for Relocating Employees

A salaried employee does not suddenly become a complicated mortgage borrower because they changed cities.

If your salary supports the loan and your employment meets conventional guidelines, a conventional mortgage will often provide the strongest combination of interest rate, down payment flexibility and underwriting.

The relocation assistance simply becomes another documented source of funds for the transaction.

That was the case with our Austin borrower. He did not need an alternative-income mortgage program. He had traditional employment and qualifying income. The job was to make sure the employer relocation funds were documented in a way that allowed them to be used toward the purchase.

For a financially strong employee, that is usually the first place we want to look: use the qualified mortgage guidelines already available rather than making the transaction more complicated than it needs to be.

Employer Relocation Funds Can Work With Jumbo Loans Too

Relocation benefits are also common among executives, attorneys, physicians, engineers, senior managers and other highly compensated professionals whose new home may require a jumbo mortgage.

The difference is that jumbo loans are not underwritten directly to Fannie Mae's guidelines. Each jumbo lender or investor can establish its own requirements for acceptable funds, minimum borrower contributions and post-closing reserves.

That makes lender selection important.

One jumbo lender may accept an employer relocation grant toward the down payment with relatively straightforward documentation. Another may require more money to come directly from the borrower. A third may accept the relocation funds for closing but require the borrower's reserves to come from another source.

For a strong borrower, this is generally a lender-selection problem rather than a reason the transaction cannot work. A mortgage broker can compare jumbo lenders and put the loan with one whose rules fit the relocation package instead of asking the borrower to restructure the entire transaction around one bank's guidelines.

What If You Already Own a Home?

For homeowners relocating for work, the employer funds may solve part of the down payment. The bigger issue is often the house they are leaving behind.

You may have $200,000, $400,000 or considerably more in home equity, but that money is still trapped inside your existing property. At the same time, the mortgage payment on that home may continue to count when you qualify for the next one.

There are several ways to approach it.

Sell Your Current Home Before Buying

Selling first gives you access to the equity in your current property and eliminates the existing mortgage payment.

When the timing works, this can be straightforward. The problem is that corporate relocations rarely revolve around the ideal time to sell your house.

Your new employer may need you in Austin on October 1. Your current home may take 60 days to prepare, list and sell. Trying to force both transactions onto the same schedule can mean temporary housing, storage, multiple moves or accepting an offer on your old home simply because you need the transaction finished.

For many relocating homeowners, there is no reason to create that pressure.

Use an Employer Home Buyout Program

Some larger corporate relocation packages include assistance with the employee's existing home.

An employer or relocation company may purchase the departing residence, guarantee a sale or otherwise assume responsibility for paying off the existing mortgage.

Fannie Mae addresses this situation as well. When an employer assumes responsibility for paying off an existing mortgage as part of a relocation plan, the lender can document the arrangement using the executed buyout agreement.

If your employer provides this type of benefit, make sure your mortgage broker reviews the entire relocation package. The provision dealing with your current home may be as valuable as the cash relocation payment itself.

Buy the New House Before Selling the Old One

You can also separate the purchase and sale entirely.

A Buy Before You Sell strategy can allow a relocating homeowner to purchase the new property, complete the move and sell the departing residence afterward.

There are 2 different problems that may need to be solved.

Equity Unlock solves the cash problem. If you have substantial equity in your existing property but need that money for the down payment on your next home, Equity Unlock can provide access to a portion of the equity before the property sells.

DTI Drop solves the qualification problem. If you already have enough cash for the down payment but carrying both housing payments makes your debt-to-income ratio too high, DTI Drop can potentially remove the departing residence's mortgage payment from qualification.

That gives relocating homeowners considerably more control over timing. Instead of selling because the new job starts next month, they can buy the new house, move once and sell their former home when they are ready.

Your Employer Funds and Home Equity Can Work Together

The strongest relocation strategy does not necessarily rely on one source of money.

Consider someone moving to Austin with a strong salary, a $50,000 employer relocation package and $300,000 of equity in the home they currently own.

The employer funds could cover part of the down payment and closing costs. Equity from the existing property could provide additional cash through a Buy Before You Sell structure. The new salary could be used to qualify for the conventional or jumbo mortgage.

Each part of the borrower's financial picture solves a different piece of the move.

That is considerably more useful than assuming the only option is to sell the old house, move into a rental, start the new job, wait for a few paychecks and then begin shopping for another home.

Why Working With a Mortgage Broker Matters When You Relocate

Relocation loans can look simple until several moving pieces start happening at the same time.

You may have a new employment contract, an employer relocation payment, a home that has not sold yet, equity you want to use for the next down payment and a closing date that needs to happen before your first day in the new office.

A mortgage broker can evaluate all of those pieces together and determine which lender has guidelines that fit the transaction.

That becomes even more important with jumbo mortgages. One lender may accept the relocation funds exactly as they are structured while another may impose additional requirements. One lender may be comfortable closing before the first paycheck while another wants the borrower to start employment first.

There is no reason to change a strong transaction because one bank has a guideline that does not fit it. The better solution is often changing the lender.

A mortgage broker can also review the relocation documents before the file goes to underwriting, identify what needs to be sourced and make sure the employer letter says what the lender actually needs to verify.

That preparation can be the difference between a straightforward approval and an underwriter asking for a pile of additional documentation 3 days before closing.

Why Work With LendFriend Mortgage When You Are Relocating?

At LendFriend Mortgage, we work with borrowers relocating between states and understand that these transactions are about more than finding an interest rate.

The mortgage needs to fit the job start date, relocation package, existing home, available cash and timing of the move.

For a salaried borrower, we first look at whether a traditional conventional or jumbo mortgage provides the strongest structure. If the employer is providing relocation assistance, we review the program and determine how those funds can be incorporated into the purchase. If the borrower already owns a home, we evaluate whether selling first or using a Buy Before You Sell strategy produces the better outcome.

That is what we did for the borrower relocating from the Chicago area to Austin. He had a strong job, an established employer relocation benefit and wanted to buy an approximately $800,000 home. We documented the employer funds correctly and used a traditional mortgage structure to get the purchase done.

The goal is not to make a relocation mortgage complicated. It is to understand all of the options available so the borrower does not leave money, flexibility or purchasing power on the table.

The Bottom Line

If your employer is paying you to relocate, those funds may be able to help with the down payment and closing costs on your new home.

For conventional mortgages, Fannie Mae has established guidelines specifically addressing employer assistance. The key is proving that the benefit comes from an established company program, documenting the amount and terms of the assistance and showing that the funds came from the employer.

Relocating homeowners have even more options. Your employer relocation funds can potentially work alongside the equity in your current home, and a Buy Before You Sell structure can allow you to purchase the next property without forcing the old house to sell on your employer's timeline.

For our borrower moving from the Chicago area to Austin, properly documented employer assistance became part of the money used to purchase an approximately $800,000 home. His new job brought him to Texas. His relocation package helped him buy the house once he got here.

If your company is giving you money to move, make sure your mortgage strategy takes full advantage of it.