Down Payment: FHA Loan Rules
How much do you know about FHA loan down payment requirements? If you’re feeling in the dark about this as a new house hunter, don’t feel bad-we take plenty of reader questions in the comments section about FHA home loans, but from time to time we get them not just from home buyers or sellers, but also from loan officers and others in the industry.
There was a reader question this week from an “industry person” about down payments and the FHA loan rules associated with them. We like to point out in times like these that we are not affiliated with the FHA, HUD, or any other government entity, but we do where and know how to find the answers to questions like the following:
“What about two brothersone qualifies for the loan, but the other brother would provide 1/2 of the down payment, wants to be on title/purchase. Since, I as the lender, cant ask for verification of the brothers down payment moniesis this ok? My borrower qualifies with income and credit, but has only 1/2 of the down payment.”
This is actually a fairly simple question to answer since the FHA single family loan rulebook, HUD 4000.1, addresses the sourcing of down payment funds (also known as a minimum required investment or MRI for short) quite unambiguously.
Down payment funds must be sourced to make sure they do not come from unapproved sources such as a non-collateralized loan, or from a source that could financially benefit from the transaction. The situation described in the reader question above, without any additional information, could be interpreted as a gift of down payment funds from a family member.
According to HUD 4000.1, “Any gift of the Borrower’s MRI must also comply with the additional requirements set forth in Source Requirements for the Borrower’s MRI.”
In any case, gift or not, later on in HUD 4000.1 we learn the following is required of the lender:
“Where the Borrower’s MRI is provided by someone other than the Borrower, the Mortgagee must also obtain documentation to support the permissible nature of the source of those funds.
So it is clear that the lender is required to verify the sourcing of gift funds, regardless of family relationship, etc. There are other factors that could affect this transaction such as individual lender standards, state law, etc. FHA loan rules do not overrule state or local ordinances, so that would have to be taken into consideration where applicable.