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Articles in Category: Closing Costs

August 2, 2012

FHA Loan Down Payment Rules-What Borrowers Should Know

By Joe Wallace

A reader recently asked us in the comments section, “I am in the process of selling my home & looking to buy another house.” “My question is: do I have to have the money for the down payment & any closing costs in my checking or savings account prior to the closing date or can the procedes from the sale of my home be used for that?” FHA guaranteed home loans usually require a down payment, and the source of that down payment money is strictly regulated by FHA rules. According to HUD 4155.1 Chapter Five, Section B: “Under most FHA programs, the borrower is required to make a minimum downpayment into the transaction of at least 3.5% of the lesser of the appraised value of the property or the | more...

 

May 17, 2012

FHA Loan Reader Question: Down Payment Funds for FHA Mortgages

By Joe Wallace

A reader asks, “Just for clarification, can tax credits be used in calculating the required down payment? I have always been told they can not. Also if they use a credit card for a deposit it can not be used in the calculation. Is this correct?” Tax credits are not included in the FHA’s list of acceptable down payment fund sources. Credit cards are also not listed as acceptable sources; while the FHA does permit “collateralized loans” as a down payment source, the credit card would be considered an uncollateralized loan. This is because there is nothing to secure the loan when paying with a credit card. With a car loan, the car itself acts as collateral, the same as with a mortgage loan where the house itself secures the | more...

 

March 20, 2012

Reader Question: FHA Down Payment Requirements

By Joe Wallace

A reader asks, “I am in the process of buying a home and trying to get an FHA loan. The mortgage company said we could no longer use gift money for down payment that we had to have the money in our bank account for 60 days. We got a gift of $30,000 to put on our house. What are the rules for FHA?” The FHA has specific rules covering gift funds for down payments. According to the HUD Homeownership Center Reference Guide, Chapter Two, Mortgage Credit Guidelines, the rules are clear: “HUD does not approve down payment assistance programs in the form of gifts administered by charitable organizations. (HUD defines charitable organization as “an organization who has

 

February 27, 2012

FHA Loan Reader Questions: Seller “Assistance” Limits

By Joe Wallace

We always encourage people to ask us questions about the FHA home loan process in our comments section, and one thing that definitely helps us to answer them properly is to provide as much specific detail about your question as possible. One reader asks, “Applying for an FHA Loan and was told that the assistance with closing costs on my loan floats. One day it could be 5.0% or 4.0%. Is that true?” It’s tough to know what the specific question is in this case, but most likely the reader is asking about seller concessions. These concessions are permitted by FHA loan rules, which state; “The seller and/or third party may contribute up to six percent of the lesser of the property

 

October 20, 2011

Does the FHA Provide Down Payment Assistance?

By Joe Wallace

Recently we posted about FHA rules for down payments. For all FHA new purchase home loans, there is a minimum down payment of 3.5%. Borrowers are required to make this down payment above and beyond any closing costs and related fees that may be required to be paid up front. Some borrowers may have a difficult time coming up with cash to make down payments, and while the FHA does allow loan applicants to borrow money for a down payment, it must come from a third party with no financial interest in the FHA insured loan transaction and must be secured by “real property” rather than a credit card cash advance or signature loan. Some borrowers ask if the FHA also offers a down payment assistance program to help borrowers | more...

 

October 18, 2011

FHA Loans: Can I Use a Power of Attorney to Close?

By Joe Wallace

The FHA loan process can be a long and winding road before getting to the closing date, and not every transaction goes as smoothly as hoped. While many FHA borrowers fully anticipate showing up on closing day to sign final paperwork, render any payments due and take possession of the property, sometimes life gets in the way and prevents the borrower from being there in person. Sometimes that’s because of work requirements, family emergencies, health problems or other factors, but regardless of the cause, something is preventing the borrower from being physically present to sign his or her name and take ownership of the home. If a borrower cannot be present in person to close the deal, do FHA rules allow a third party to act on the borrower’s behalf | more...

 

September 23, 2011

FHA Loans and Minimum Cash Investment Requirements

By Joe Wallace

Borrowers new to FHA loans soon learn about the requirements to qualify for the loans, which include what the FHA calls a “minimum cash investment”, which is essentially a down payment of at least 3.5% of “the lesser of the appraised value of the property or the sales price.” But the down payment isn’t the only thing required as a minimum cash investment–something that cannot be rolled into the loan or otherwise financed. According to HUD Handbook 4155.1, “the borrower must have sufficient funds to cover borrower-paid closing costs and fees at the time of settlement.”. FHA requirements also state that any money used to cover these minimum costs must come from “acceptable sources”. FHA rules state the lender is responsible for verifying that all money for these expenses comes | more...

 

August 9, 2011

FHA Loans and Down Payment Assistance

By Joe Wallace

FHA home loans require a “minimum investment” or down payment from the borrower in order to be approved. The amount of the down payment for FHA insured loans at the time of this writing is a minimum 3.5% of the price of the home. Some loans may require more due to certain factors, but 3.5% is the FHA minimum. The buyer must pay the down payment, and it should be noted that other up-front costs such as closing expenses, appraisal fees and other charges do not count towards this minimum. The down payment amount all by itself is a serious amount of money for any borrower, and it’s one reason why financial experts always recommend borrowers take at least a year to prepare for the costs of a home loan–making | more...

 

August 8, 2011

Am I Ready For An FHA Home Loan?

By Joe Wallace

Buying a home with an FHA insured mortgage is an important investment, and many borrowers at the start of their journey not knowing whether they are ready for their entry into home ownership. We’ve said time and again that the best course of action is to take the advice of financial experts who recommend preparing at least a year before making a full commitment to buy a home. But why is that recommended? Some first time home buyers don’t understand the expenses connected to purchasing a home. The down payment required on FHA loans–3.5%– is the lowest you’re likely to find compared to conventional loans which often require 10% down or more. That down payment is only one of the expenses. There are closing costs, appraisal fees, and optional money-saving | more...