Five Things to Know About FHA Loan Down Payments
August 22, 2023
There are five important things to know about the down payment requirements for an FHA home loan. Before we launch into those five things, it’s important to note that the earlier you begin saving a down payment for your home loan, the better.
Some are happy to make only the minimum 3.5% down payment, others want to pay more to lower the principal balance. Others may not have a choice to make a higher down payment due to FICO scores or other credit issues. Regardless of circumstance, the earlier you begin saving, the less of a financial bite it may be over the long term.
A Down Payment Is (Nearly) Always Required
Most FHA mortgages require at least 3.5% down. If your FICO scores are below 580, FHA loan rules say your down payment will be 10%.
There is only one exception to the down payment requirement for purchase loans. If you apply for an FHA 203(h) rehabilitation loan to repair or replace a home after a natural disaster, you may be approved for 100% financing with no money down.
Don’t Confuse FHA Loans With VA or USDA Loans
VA loans offer a zero-money-down option on their mortgages. But these home loans are not offered to the general public. USDA mortgages may also feature no-money-down options, but these are typically need-based mortgages with income caps and other limitations.
FHA home loans do not have such restrictions. Any financially qualified applicant may apply.
Sources of Your Down Payment Count
Did you get down payment funds from cashed-out stocks or other investments? This is permitted. Did you get funds from a friend or relative who offered you money from cash saved at home, in a savings or checking account? This is permitted.
Did you or a gift giver provide down payment money sourced from credit card cash advances? This is not allowed.
Did you or a gift giver provide down payment money sourced from pink slip loans, payday loans, or similar sources? This is not allowed
FHA Loans and Seasoned Down Payment Funds
It’s not just where the money comes from (a gift, a loan, a down payment grant, or money saved at home) but how long the money has been in your account. Your lender may require the funds to be “seasoned” in your account for a specific time before the money can be approved as a source of your down payment.
Your Down Payment Stands Alone
No other payment, including closing costs and mortgage insurance, may be counted toward your down payment. It is a separate expense, and paying cash upfront for FHA mortgage insurance (just one example) does not result in a dollar-for-dollar reduction in the down payment requirement.
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RELATED VIDEOS:
Disclosures Give Transparency to Borrowers
Understanding the Purpose of Your Mortgage Down Payment
Putting Money Into Your Escrow Account
Some are happy to make only the minimum 3.5% down payment, others want to pay more to lower the principal balance. Others may not have a choice to make a higher down payment due to FICO scores or other credit issues. Regardless of circumstance, the earlier you begin saving, the less of a financial bite it may be over the long term.
A Down Payment Is (Nearly) Always Required
Most FHA mortgages require at least 3.5% down. If your FICO scores are below 580, FHA loan rules say your down payment will be 10%.
There is only one exception to the down payment requirement for purchase loans. If you apply for an FHA 203(h) rehabilitation loan to repair or replace a home after a natural disaster, you may be approved for 100% financing with no money down.
Don’t Confuse FHA Loans With VA or USDA Loans
VA loans offer a zero-money-down option on their mortgages. But these home loans are not offered to the general public. USDA mortgages may also feature no-money-down options, but these are typically need-based mortgages with income caps and other limitations.
FHA home loans do not have such restrictions. Any financially qualified applicant may apply.
Sources of Your Down Payment Count
Did you get down payment funds from cashed-out stocks or other investments? This is permitted. Did you get funds from a friend or relative who offered you money from cash saved at home, in a savings or checking account? This is permitted.
Did you or a gift giver provide down payment money sourced from credit card cash advances? This is not allowed.
Did you or a gift giver provide down payment money sourced from pink slip loans, payday loans, or similar sources? This is not allowed
FHA Loans and Seasoned Down Payment Funds
It’s not just where the money comes from (a gift, a loan, a down payment grant, or money saved at home) but how long the money has been in your account. Your lender may require the funds to be “seasoned” in your account for a specific time before the money can be approved as a source of your down payment.
Your Down Payment Stands Alone
No other payment, including closing costs and mortgage insurance, may be counted toward your down payment. It is a separate expense, and paying cash upfront for FHA mortgage insurance (just one example) does not result in a dollar-for-dollar reduction in the down payment requirement.
------------------------------
RELATED VIDEOS:
Disclosures Give Transparency to Borrowers
Understanding the Purpose of Your Mortgage Down Payment
Putting Money Into Your Escrow Account
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