About FHA Mortgage Down Payment Requirements
The rules for these issues are found in HUD 4000.1 and are quite specific. For example, the rules say that the lowest possible down payment in most cases is 3.5% for new purchase loans. This amount is paid based on the adjusted value of the property, which means a new appraisal is required.
HUD 4000.1 states that the borrower’s down payment does not have to come from the borrower specifically, but the seller is not allowed to provide down payment money nor is anyone who directly OR indirectly benefits financially from the loan.
The rules also say that down payment money cannot come from anyone who gets reimbursed (directly or not) from the transaction.
That is NOT to say that these people or entities cannot contribute a certain amount (with restrictions) toward closing costs, but closing costs should never be confused with the expense of the down payment since these two expenses are totally separate.
The payment of one does not affect the payment of the other, so any amount you pay or have paid toward closing costs does not change or reduce the amount of money you are required to pay up front as the down payment.
Some borrowers mistakenly believe that they can have funds given to them by others for the down payment or closing costs without the source of those funds being scrutinized by the lender. Don’t assume your loan officer will not check on the sourcing of these payments-the lender is required by law to do so.
Knowing the rules governing who can pay your closing costs and/or help you out with downpayment assistance can be quite helpful to a house hunter or first-time home buyer looking to save some money on the transaction.
You can negotiate with the seller to get seller-paid closing costs considered as a negotiating point; you may be able to save money from your closing costs if the seller pays; money you can transfer to your down payment instead, or save for future home expenses if you are applying for down payment assistance in your local area.
If you need help finding a down payment grant in your area, have a look at this handy resource that breaks down down payment grant programs by state. These are NOT administered by the federal government, the FHA, or HUD. You will need to contact each agency to learn what the requirements are and remember that these are locally offered programs; your experience will vary depending on location.
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