January 28, 2013
A reader asks, “Is it true the first time buyer with an FHA Loan can purchase the home with no money down?”
The FHA loan program is similar in some ways to another government-backed loan program–VA loans. VA guaranteed loans are for eligible veterans and feature a no-down payment option unique to that program. FHA home loans, which are also government guaranteed mortgage loans issued by a private lender, do not feature a no downpayment option.
According to FHA home loan rules as described in Chapter Two of HUD 4155.1, says the following about down payments on FHA loans in a section titled Maximum Mortgage Amount For A Purchase:
“The maximum mortgage amount that FHA will insure on a purchase is calculated by multiplying the appropriate loan-to-value (LTV) factor by the lesser of the property’s sales price, subject to certain required adjustments, or appraised value. In order for FHA to insure this maximum loan amount, the borrower must make a required investment of at least 3.5% of the lesser of the appraised value or the sales price of the property.”
It’s important to note that the rule does not make a distinction between a first-time home buyer and any other type of FHA loan applicant. All borrowers who apply for FHA home loans will be required to make the required minimum down payment on their mortgage loan.
Additionally, FHA loan rules make a distinction between the down payment and closing costs–a borrower should not expect that his or her closing costs will be considered part of the down payment amount–these charges (including discount points, appraisal fees and other costs) are completely separate from the down payment requirement.
Do you have questions about FHA home loans? Ask us in the comments section.
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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