FHA Loan Down Payment Issues You Need to Know

December 17, 2018

The down payment on a home loan is one of the big expenses borrowers worry about in the planning stages of the mortgage process. What do borrowers need to know about down payments and FHA home loans?

FHA Home Loan Down Payments Are Required

There are few no money down home loan options available in a broad general sense; VA mortgages have no down payment requirement in most cases but these loans are only for military members and certain spouses who qualify. The general public cannot use a VA mortgage unless the military service requirements are met.

USDA home loans feature a zero down payment option but these loans are restricted to rural areas and have income requirements.

Compare that to FHA mortgage loans which are open to all financially qualified borrowers regardless of home ownership history and income amounts. There is no minimum or maximum income requirement for FHA mortgages. Instead, borrowers must meet FHA loan debt-to-income ratio standards.

Who Can Help With Your FHA Home Loan Down Payment?

You can have a family member gift you down payment funds if those funds meet FHA loan requirements. You can have an employer help out with the down payment, too. But you cannot get down payment help from the seller of the home you wish to buy, or from a real estate agent helping you with the purchase, or anyone else financially benefiting from the transaction.

FHA Home Loan Down Payments Can Be Offset by Seller Contributions

The seller is not permitted to offer down payment funds but IS permitted to contribute to approved closing costs up to six percent of the asking price of the property.

Down Payments Are Larger for Those With Lower Credit Scores

Lower FICO scores can equal larger down payment requirements. Ask your participating FHA lender what the FHA loan standards are for FICO scores in reference to the amount of the required FHA mortgage loan down payment.

Does It Make Sense to Put More Money Down When It's Not Required?

The real question to ask when deciding whether or not to pay more up front on your home is whether you plan to stay in the property long-term or not. If you do plan to keep the house for a long time, the bigger down payment makes sense.

Those not planning to stay a long time may wish to reconsider making the bigger down payment if they can avoid paying more; there is no real advantage to a large down payment if you are selling the home in a few years anyway.
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