Articles Tagged With: Down Payment

April 21, 2017

Down Payment Assistance and FHA Loans

A reader got in touch this week about a question related to down payment assistance for FHA mortgages. “I’m buying a home for 175,000. I’ve been cleared to close. Ive been approved for $30,000 down payment assistance which has covered all my down/closing fees.” “A day before closing the FHA is saying I still need to pay 3.5% of the purchase. Is it still required? I thought with FHA at least $1000 earnest money was enough. I had $30,000 already approved.” Answering this question is difficult for two reasons-we don’t know the specifics of the gift funds, and whether those funds were actually considered down payment assistance or contributions toward closing costs. There is a big difference between down payment assistance funds, and funds contributed to closing costs. FHA loan | more...

January 26, 2017

FHA Loan Rules For Gift Funds

By Joe Wallace

FHA loan rules in HUD 4000.1 have specific guidelines where gift funds to the borrower are concerned. Gift funds are commonly used for home loan expenses including down payments, but when the borrower accepts gift funds for the purpose of making that down payment, the funds must meet FHA acceptability standards. What does this mean? FHA loan rules are very precise when it comes to the source of money used for a down payment. A borrower cannot use proceeds from a non-collateralized loan such as a payday loan or credit card cash advance to make a down payment, and if gift funds are used the money must come to the borrower with no obligations. HUD 4000.1 has the guidelines for these gifts, which includes the following definition: “Gifts refer to | more...

November 10, 2016

FHA Good Neighbor Next Door Loans

By Joe Wallace

A reader asks, “Im active duty military stationed overseas with 2 years left on my tour, and I’m interested in buying a home in my state or record to return to. If I take leave and occupy the house multiple times throughout the year, and have family watch it. Am I able to qualify under the FHA Good Neighbor Next Door Program? Or is that unlikely? The FHA Good Neighbor Next Door program is described on the FHA official site: “The Good Neighbor Next Door (GNND) sales incentive permits an Owner- Occupant Borrower who is a full-time law enforcement officer, teacher, firefighter, or emergency medical technician who meets HUD requirements to purchase a specifically designated HUD REO Property located in a HUD- designated revitalization area with FHA-insured financing at a | more...

November 2, 2016

Down Payment Rules: An FHA Loan Question

By Joe Wallace

A reader asks, “I’m buying a home for 160,000 and the seller is paying up to 4000 in closing costs and pre-paids (which the closing cost ended up only being 3,525 because the lender required me to pay for the appraisal outside of closing POC) I also put 500 earnest money down.” “They are telling me that I have to bring 5,100 to closing instead of 4,625 because they said that I have to bring a total of 3.5% (5600) and the 475 that I already prepaid can not go towards my total 3.5% down. I thought that because I put 500 earnest money deposit and paid for the appraisal outside of closing and the seller is paying for all my closing costs, that I would be able to use | more...

When Is An FHA Loan Better Than A Conventional Loan?

July 18, 2016

FHA Loan Rules On Seller Contributions Part Two

By Joe Wallace

In our last blog post, we answered a reader question about whether or not it’s permitted for the seller to contribute to the buyer’s closing costs and down payment. FHA loan rules do not permit anyone with a financial stake in the outcome to contribute towards a buyer’s down payment, but the rules DO permit the seller or other interested parties to contribute up to six percent of the sales price of the home. There’s a caveat to that listed in HUD 4000.1. Any contributions by the seller (or other interested parties) that exceeds the six percent limit is classified as an “inducement to purchase”. HUD 4000.1 explains what this means on page 221: “Inducements to Purchase refer to certain expenses paid by the seller and/or another Interested Party on | more...

May 5, 2016

FHA Loans and FICO Scores: Fact and Fiction

By Joe Wallace

Some potential FHA borrowers have questions about FHA loan credit score requirements. It’s easy to hear part of story when it comes to other people qualifying for an FHA mortgage and assume you’ve gotten all the facts, but the reality is that FHA loan rules and credit score requirements aren’t the whole picture. Lender standards also have a say in loan approval. That is why FHA loan rules, which specify a FICO score starting at 580 (for maximum financing), don’t have the final say. Lender standards also apply, and those standards (provided they are applied in accordance with federal law) will also factor into the application process. An FHA loan fact: FICO scores below 500 are not permitted. An FHA loan fiction: Anyone with a FICO score in the mid | more...

February 2, 2016

FHA Mortgage Loan Down Payment Rules

By Joe Wallace

FHA loans require a minimum down payment of 3.5%–that’s typical for many FHA mortgages. In some cases, depending on the nature of the loan and the borrower’s financial qualifications and FICO scores, the required down payment may be higher. But no matter what the down payment amount might be (and it will vary from loan to loan) the FHA has specific rules governing the sources of and verification for down payment funds. The FHA loan rulebook for single family mortgage loans is HUD 4000.1, which refers to the down payment as a “minimum required investment”: “Minimum Required Investment (MRI) refers to the Borrowers contribution in cash or its equivalent required by Section 203(b)(9) of the National Housing Act, which represents at least 3.5 percent of the Adjusted Value of the | more...

January 7, 2016

FHA Loan Down Payment Requirements

By Joe Wallace

A recent question in our comments section asked if the down payment for an FHA home loan could be financed, or does it need to come “out-of-pocket”. This is an important factor for FHA single family home loans as there is what the FHA describes as a “minimum cash investment” or down payment required that a potential FHA home loan applicant will need to budget for. That down payment is, at the bare minimum, 3.5% of the “adjusted value” of the property. This is stated in HUD 4000.1 which says specifically: “Minimum Required Investment (MRI) refers to the Borrowers contribution in cash or its equivalent required by Section 203(b)(9) of the National Housing Act, which represents at least 3.5 percent of the Adjusted Value of the Property.” This must be | more...

July 23, 2015

FHA Loan Down Payments: How Your Lender Verifies Cash Saved At Home

By Joe Wallace

In our previous blog post we discussed some of the rules for down payment funds on an FHA home loan. Did you know the FHA requires its participating lenders to verify the sources of all down payment money? This is to prevent funds coming from unacceptable sources such as credit card cash advances or payday loans. Borrowers are permitted to bring in a down payment with money saved at home, but the FHA loan rulebook has specific instructions to the lender about how this type of down payment money is to be verified and handled. Chapter Five of HUD 4155.1 tells the lender that money saved at home should be verified with help from the borrower who must provide specific information about the funds. “To verify cash saved at home, | more...

March 27, 2015

FHA Loan Reader Questions: FICO Scores and Down Payment

By Joe Wallace

A reader sent us a question via our comments section recently, asking: “I HAVE A CREDIT SCORE OF 591, I HAVE WORKED FOR MY JOB FOR 18 YEAR. I WOULD LIKE TO PURCHASE A HOME AND AM WORKING ON MY CREDIT WITH MY CREDIT UNION. WHAT MORTGAGE COMPANY WOULD WORK WITH ME TO GET A HOME? I DON’T HAVE MONEY FOR A DOWN PAYMENT”. Unfortunately, FHA home loans do not offer a zero downpayment option. FHA loan rules found in HUD 4155.1 states clearly that a “minimum borrower cash investment” or downpayment is required. The minimum down payment on any new purchase FHA home loan is 3.5% of the sale price or appraised value of the home (whichever is lower). That information is found in HUD 4155.1 Chapter Five Section | more...