July 13, 2021
Some borrowers get nervous about having to come up with a down payment. It is more than some have spent on one thing in their adult lives all at once, who can blame them for worrying?
FHA home loans permit down payment gifts and grants and that can be a huge help for the first-time homebuyer. The rules for these programs must clearly explain the conditions of the grant or gift, under what conditions it might be required to be paid back–those payback terms of often triggered by violating the terms of the agreement.
It can also happen when the home is sold, paid off, or no longer used as the primary residence.
Such gifts may come from state or local housing development agencies or other local entities–remember that the FHA does not provide down payment assistance options itself.
Another area where your down payment could be supplemented? Your seller is permitted under the FHA loan program to contribute up to six percent of the sale price of the home.
This goes toward closing costs. This frees up money you would otherwise have to use to close the loan and lets you put that cash toward the down payment. You CANNOT use seller money for the down payment.
What else do you need to know about FHA loan down payments? There are several areas to be aware of.
FHA Loan Down Payments: Always Required
Unlike the USDA Single Family Loan program, the FHA loan program does not have a no money down option. USDA loans are need-based and there is a clear need for a zero-down option in those cases. FHA mortgages are NOT need-based and do not require you to be a first-time buyer.
Are you thinking of applying for a One-Time Close construction loan?
Ask your participating FHA lender about using land equity as part of the down payment. but that aside you should expect FHA loan down payment requirements to apply to you. It is a good idea to pursue down payment assistance options from your state government or a local agency.
FHA Loan Down Payment Rules: Sourcing Required
When you go to make your down payment or submit your down payment information to the lender, if you have a large deposit in your account that doesn’t have any explanation or documentation, your lender may be unable to accept those funds as down payment money.
The same is true for any down payment that is sourced in whole or in part by down payment assistance that is a loan in disguise. A so-called gift offered with an expectation of repayment instead.
Your lender requires clear documentation for your down payment money not just to make sure it comes from an approved source but also to ensure that it does not come from those who are legally not permitted to provide down payment assistance.
Your seller cannot provide down payment funds, for example. You will need to ask your loan officer what sources are acceptable and which are not, but a general rule of thumb is that a non-collateralized loan, credit card cash advance, or payday loan cannot be used for your down payment.
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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