Is There a No Money Down FHA Loan Option?
“Is there any assistance I can get in order to buy a house without a down payment?”
FHA home loans do not feature a no money down option. One type of government-backed home loan program does--VA loans. But VA loans are for qualified veterans and currently serving military members and that program is administered by the Department of Veterans Affairs, not the FHA.
While there are state and local programs that may offer assistance to home buyers, first time home buyers, or home buyers who are in financial need, the FHA itself does not feature any such programs aside from offering a referral to HUD-approved counseling agents in the borrower’s local area. Down payment assistance programs are not administered or overseen by the FHA, so it’s up to the borrower to find such programs in the community or nearby.
FHA loan rules are very specific about down payments, and the source of all down payment funds. The rules governing down payments are found in HUD 4155.1 Chapter Five, Section B, titled “Acceptable Sources of Borrower Funds.” A quick reading of section reveals the following instructions to the lender:
“Under most FHA programs, the borrower is required to make a minimum downpayment into the transaction of at least 3.5% of the lesser of the appraised value of the property or the sales price.”
This chapter also adds that the minimum down payment--that three point five percent-- is not the only up-front cash requirement borrowers have to save up for:
“Additionally, the borrower must have sufficient funds to cover borrower-paid closing costs and fees at the time of settlement. Funds used to cover the required minimum downpayment, as well as closing costs and fees, must come from acceptable sources and must be verified and properly documented.”
That means the FHA has a definite say in how the borrower can pay for these cash-up-front expenses. Cash advances from a credit card, payday loans or other types of nonsecured debt to provide down payment funds or closing cost money are NOT allowed.
Borrowers are permitted to use grants or loans, investment proceeds, personal savings, cashed-in stocks or bonds and many other sources of down payment money as long as these meet FHA loan standards.
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