March 11, 2024
Are you looking for a home loan with a lower downpayment requirement? In 2024, FHA home loans are a smart option to consider in such cases as the housing market slowly tries to recover.
These down payments are often lower than their conventional mortgage equivalents, and borrowers who struggle to come up with the 20% down needed to avoid conventional private mortgage insurance, which is required on a conventional mortgage, may find a better option in the FHA loan program.
According to the Consumer Financial Protection Bureau, those who don’t pay 20% down on a conventional loan may encounter down payment requirements of up to 15%.
“Most lenders offer conventional loans with PMI for down payments ranging from 5 percent to 15 percent.” The Bureau adds that “some lenders may offer conventional loans with 3 percent down payments,” but your experience may vary.
How Much Is My FHA Down Payment?
The FHA’s minimum required borrower investment, also known as your FHA loan down payment, is offered to all qualifying borrowers with FHA-required FICO scores of 580 or above.
Lenders may have higher standards, and reviewing several banks to see what is available pays off in the long run. But you must first meet the FHA minimum FICO score standards.
FICO scores may also determine your down payment. If you don’t meet the FHA loan program minimums, you may be asked to pay 10% down, not 3.5%.
Where Is Your Down Payment Cash From?
Some borrowers don’t realize (at first) that it’s not just that you have funds available to use to make your FHA loan down payment at closing time but also where the money has come from and how long it has been in your account.
Many have written on the subject of sourcing downpayment money for home loans but what about how long you must have it in your account?
Lenders ask for the source of your down payment AND also want to know how long you have had the funds. Just having the money isn’t enough in this circumstance as we discover below.
Your Down Payment Money: How Long Have You Had It?
If a large amount of money appears in your bank account seemingly overnight (compared to your closing day deadlines), the lender may not accept those funds unless there is documentation as to the source.
One consumer credit bureau’s official site notes, “A lender’s financial review includes a detailed examination of at least 60 days’ worth of bank statements…” noting that any money that cannot be sourced properly is money the lender cannot accept for a down payment.
You should also know the lender does not include the funds in your financials “when gauging your ability to make your mortgage payment.”
No Cash On Closing Day
Your lender has a standard process for the down payment, including how that payment will be made.
You should not bring cash or a check to make this payment on closing day. Instead, follow the lender’s instructions and never deviate from those instructions.
That applies even when you receive a message that seems to suggest that someone from the bank is telling you to do something different from what you and the lender agreed upon.
Bruce Reichstein has spent over three decades as an experienced FHA and VA home loan mortgage banker and underwriter where he was responsible for funding “Billions” in government backed mortgage loans. He is the Managing Editor for FHANewsblog.com where he educates homeowners on the specific guidelines for obtaining FHA guaranteed home loans.
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