February 8, 2012
We get many questions about FHA home loans from our readers; some of the most frequently asked include questions about FHA loan down payment issues and the acceptable sources of down payment funds.
It’s true that all FHA new purchase home loans require at least a 3.5% down payment. That amount–the 3.5%–is current at the time of this writing. If that FHA mortgage down payment requirement changes, your lender should let you know before you commit to the mortgage in writing.
In Chapter 5 of HUD4155.1, the rules state clearly;
“Under most FHA programs, the borrower is required to make a minimum downpayment into the transaction of at least 3.5% of the lesser of the appraised value of the property or the sales price.”
The reason the FHA requires the down payment to be the “lesser of” amount is because the FHA home loan will correspond to that lower amount. Borrowers cannot get cash back on FHA loans for new purchase transactions by requesting a higher loan amount than the sales price or the appraised value of the home.
In addition to the FHA loan down payment rule, there are also requirements as to the acceptable sources of the down payment.
According to the FHA, “…the borrower must have sufficient funds to cover borrower-paid closing costs and fees at the time of settlement. Funds used to cover the required minimum downpayment, as well as closing costs and fees, must come from acceptable sources and must be verified and properly documented.”
Borrowers can’t use cash advances, payday loans or other “non-collateralized” lending to come up with a down payment. Under 4155.1 5.B.1.b, Acceptable Sources of Borrower Funds, the FHA lists the following acceptable sources:
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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