FHA Loans and the 3.5% Down Payment
FHA Low Down Payment Loans Versus Conventional 97 Mortgages
Conventional 97 loans do only require three percent down. But they can feature the following restrictions:
- Fixed-rate loans only
- The property must be a single-unit property
- No manufactured homes
- The buyer has not owned a home in the last three years
- The loan amount is at or below the typical area loan limit--no Jumbo loans
- 3.5% down payment
- Manufactured homes, mobile homes, and modular homes eligible
- Gift funds accepted for the down payment with proper documentation
- Purchase a home with up to four living units
- No first-time home buyer requirement
- FHA loans permit Jumbo loans in excess of the loan limit for that housing market
- No penalty for early payoff of the loan
Like most down payments, the source of your down payment funds including gift funds requires proper sourcing.
Make sure you provide a letter with any down payment gift that explains the amount, whether or not it is a bona fide gift (it must be a gift with no expectation of repayment ever) and explain that the gift did not come from unallowed sources like cash advances on a credit card, payday loan, etc.
When you make your plans to save for your down payment, do not forget that while sellers cannot help you in any way with the down payment, the seller IS permitted to provide help with closing costs up to six percent of the sale price of the home.
This is called a seller concession and must be negotiated with the home seller. The seller cannot provide you with more than six percent--anything more is considered an inducement to purchase and the loan amount is reduced dollar for dollar by the amount over six percent. That’s an important factor to know, especially when you’re negotiating the purchase of a home for the first time.
Learn About the Path to Homeownership
Take the guesswork out of buying and owning a home. Once you know where you want to go, we'll get you there in 9 steps.
Step 1: How Much Can You Afford?
Step 2: Know Your Homebuyer Rights
Step 3: Basic Mortgage Terminology
Step 4: Shopping for a Mortgage
Step 5: Shopping for Your Home
Step 6: Making an Offer to the Seller
Step 7: Getting a Home Inspection
Step 8: Homeowner's Insurance
Step 9: What to Expect at Closing
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