Do You Need Down Payment Assistance for Your Home Loan?
The FHA Does Not Offer Down Payment Assistance
The FHA loan program itself does not have a down payment assistance program, even for first-time home buyers. That’s not to say the agency does not have resources that can help you locate one in your area, and you can also search lists of down payment grant programs by state at non-FHA/HUD sites.
These programs must meet certain rules and federal regulations to provide down payment help to borrowers.
The big thing to remember is even when the list of down payment assistance programs is provided to you via an official “dotGov” website, the FHA and HUD do NOT issue “approvals” or stamp of approval ratings for such agencies.
Down Payment Assistance Programs Must Not Provide Gift Funds for Non-Down Payment Purposes
FHA loan rules do not permit down payment assistance programs to provide gift funds to the borrower for any of the following purposes:
- Paying off installment loans
- Paying credit card debt
- Paying off a collection action
- Paying for a judgment against the borrower
- Satisfying liens
- Paying off any similar debts
These rules are found in HUD 4000.1, the FHA Single Family Loan program handbook, which adds that down payment gift funds must be properly documented and sourced by the lender, which means that there should be bank statements, cancelled checks, and other evidence provided that will help the lender determine the source of these funds meets FHA rules.
Down Payment Assistance Programs Will Vary Depending on the Issuing Agency
Not all down payment grants are created in the same manner, with the same rules, or the same intended recipients. Some down payment grants are offered to first-time home buyers, others may be need-based and require a statement of income for the entire household getting the down payment help.
You will need to check the rules of each issuing agency to determine whether you are eligible for a grant and meet the requirements.
FHA Down Payments Are Separate From Your Other Closing Costs
The down payment grant money you get is only good for the down payment. Closing costs outside the down payment are paid separately and while your seller or other third party may be allowed to contribute a percentage of the adjusted value of the home toward closing expenses, the down payment is an entirely stand-alone expense; your closing costs such as appraisal fees, lender fees, title fees, etc. don’t count toward the down payment or vice versa.
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