August 17, 2023
What do you need to know about the down payment requirements for an FHA home loan? Some of the requirements are simple, but some need a bit of explanation. When you begin saving a downpayment for your home loan, you’ll want to remember the tips provided below.
Your Down Payment Is A Separate Expense
The amount of your 3.5% FHA loan payment is not affected by what you pay for closing costs and mortgage insurance. None of those expenses count toward your down payment.
FHA loan down payments are considered separate. Paying cash upfront for FHA mortgage insurance never results in a dollar-for-dollar reduction in the down payment requirement.
Some Are Required To Make A Bigger Down Payment
Some FHA borrowers make only the minimum required FHA loan down payment of 3.5%
Others choose to pay more. They want to lower the principal balance and save money on interest rates over the lifetime of the loan.
Others may not have a choice. Some borrowers are required to make a higher down payment because of FICO scores or other credit problems. These applicants may be asked to put 10% down as a compensating factor.
A Down Payment Is Always Required. Or Is It?
Most of the time, FHA mortgages require at least 3.5% down unless your FICO scores are below 580. In those cases, FHA loan rules say your down payment is 10%.
There IS an exception to the down payment requirement for purchase loans. The FHA 203(h) rehabilitation loan to repair or replace a home after a natural disaster can be processed as a no-money-down mortgage.
FHA Loans Are Not The Same As VA Or USDA Loans
VA loans offer a zero-money-down option but these home loans are not offered to the general public. USDA mortgages may also include similar no-money-down loans or loans with down payment grants provided. These are typically need-based mortgages with income caps and other limitations.
FHA home loans do not feature restrictions in your household income or requirements that you be in financial need to apply. Any financially qualified applicant may apply for an FHA mortgage or refinance loan.
FHA Loans And The Age Of Your Down Payment Funds
It’s not just where the money comes from. Your down payment may be a gift, a loan, a down payment grant, or money saved at home but how long has that cash been resting in your account?
A mortgage lender may require the funds to be in the account for a specific time before the money can be approved as a source of your down payment. Ask your loan officer about this rule and how it may apply to your transaction.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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