June 23, 2011
The down payment issue is one that brings many would-be conventional borrowers to an FHA lender. After seeing what some conventional loans require for a down payment, the FHA minimum 3.5% is a definite advantage to a first-time home buyer. But when a borrower is doing research on FHA loans versus conventional equivalents, sometimes the details can be a bit confusing.
One area some have trouble understanding (at first) is the difference between the required 3.5% FHA loan down payment for a typical home purchase and the $100 down payment required on some HUD home purchases.
A HUD home purchase is not the same as taking out an FHA mortgage in the usual way. HUD homes are properties owned by the Department of Housing and Urban Development–homes that have been foreclosed upon and put back on the market to offset the government’s loss due to having to pay a claim to the lender on that particular property. HUD homes are inexpensive and according to the FHA official site, may feature a down payment as low as $100 depending on the location and condition of the property.
HUD homes are sold as-is and may require work to get them into a condition acceptable to the buyer. They can be financed with some FHA loan products under the right circumstances.
For a typical FHA mortgage loan, the minimum down payment on a home available on the ordinary real estate market is 3.5%, subject to additional requirements and FHA regulations depending on the type of mortgage and other factors.
FHA loan applicants should know that the amount of a required down payment will show up on the initial Good Faith Estimate as required by law, plus the HUD-1 Settlement Statement. These two documents are required to insure the borrower knows exactly what they must pay and when so that there are no surprises in the transaction or “gotcha” fees or charges the buyer was uninformed about.
In addition to the down payment, all closing costs, pre-paid items, up front mortgage insurance premiums and other fees are listed. The borrower must be informed of these costs prior to closing the deal.
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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