November 10, 2010
How much is the minimum down payment on an FHA loan for a single family home? It’s one of the big questions a buyer should ask when trying to plan a financial future that includes a down payment, closing costs, associated fees and other expenses. When buying a home with an FHA mortgage, some expenses may be included in the financing, but not the down payment.
FHA loans saw changes in the amount of down payment required with the passing of the Housing and Economic Recovery Act of 2008, which revised the National Housing Act. Those revisions included a requirement for the buyer to come up with a down payment of at least 3.5% of the contract sales price of the property.
When calculating that 3.5% down payment, it’s natural for FHA loan applicants to wonder if closing costs can be included in the payment. Can a buyer put the amount of those closing costs toward the down payment?
FHA requirements say no. Closing costs must be paid separately from the down payment. If 3.5% of the price of a given property comes out to $10,000, the buyer must pay that $10,000 AND the amount of the closing costs on top of that $10,000. According to FHA 2008-23, the most current FHA guidance at the time of this writing, “Closing costs may not be used to help meet the minimum 3.5% downpayment requirement. Closing costs are not considered in the mortgage amount/downpayment calculation for purchase money mortgages.”
The 2008 revisions don’t change the fact that the seller may contribute up to 6% of the price as an incentive to buy. According to the FHA, “Sellers are still permitted to provide financing concessions up to 6 percent of the sales price. Amounts exceeding six percent must be subtracted from the sales price (or value, if less) before applying the down payment percentage multiplier.”
The 3.5% down payment requirement is calculated from the sales price of the home, but it’s difficult to estimate how much the maximum FHA loan amount will be until the HUD property appraisal is done. If the property appraises for less than the asking price, the downpayment issue takes on a new dimension.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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