April 23, 2020
When the time is right to explore your FHA home loan options, there are some things you need to know about down payments that can help you better prepare for the loan process.
FHA home loans have strict rules about the source of your down payment funds and you will be required to document those sources no matter where your down payment money is sourced from. Here are the basic rules for FHA down payments:
- A down payment is required 100% of the time for new purchase FHA loans;
- Your down payment amount may be affected by your credit scores;
- You will be required to pay a minimum of 3.5% if your credit score meets FHA and lender standards; all others will be required to pay a minimum 10% down.
- Your down payment cannot come from payday loans, cash advances on your credit card, or other non-collateralized loans;
- Anyone who helps you with down payment money must follow the same sourcing rules as you; no cash advances, payday loans, etc.
FHA mortgage loan down payments require a paper trail; you cannot accept a bag of cash from a friend or family member and expect to use that as a source of down payment funds.
Your lender will require statements showing money deposited, the source of that money, etc. Undocumented down payment funds are not allowed.
Down payments are due as part of your cash to close; you cannot finance the down payment or otherwise not make the payment in your cash to close. There is no such thing as a zero-down FHA purchase loan.
But you CAN get down payment assistance from a friend, family member, employer, or a third party that meets FHA requirements.
Any down payment help you get from one of these sources must meet the same requirements listed above. Additionally, third parties cannot offer you a “gift” of down payment money AND expect repayment of that “gift”.
It takes time to save up a down payment, and assistance programs can definitely help shorten that time. But what you should know about these programs? They are offered in your local area by local agencies, when offered.
The FHA does not offer down payment assistance programs and your lender or any other party to the deal cannot provide you with down payment help.
Making a down payment seems like a financial burden, but some borrowers actually choose to pay more with an eye on reducing the costs of the loan over its entire term. The lower your principal balance is, the less interest you are charged over the lifetime of the mortgage.
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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