A reader asks, “I want to move and was qualified for an FHA but needed to know if there is any programs to help assist with the down payment. I know there is an option for sellers to offer 6% sellers assist but is there any else to cover the rest?”
The FHA itself does not offer any type of down payment assistance program. In the past there have been down payment assistance programs offered on a state or local level, but some federal laws have banned certain types of down payment assistance. Others not banned by federal law would be obliged to meet FHA loan rules as to the source of down payment money (see below).
What does this mean?
FHA loan rules require all borrowers to make a “minimum cash investment” or down payment on single family new purchase home loans. There are specific rules and guidelines for FHA loan down payments include the source of that down payment money. According to the FHA loan rules written in HUD 4155.1 Chapter Two, “The seller and/or third party may contribute up to six percent of the lesser of the property’s sales price or the appraised value toward the buyer’s closing costs, prepaid expenses, discount points and other financing concessions.”
FHA loan rules describe what this “six percent rule” includes:
- third party payment for permanent and temporary interest rate buydowns, and other payment supplements
- payments of mortgage interest for fixed rate mortgages
- mortgage payment protection insurance, and
- payment of the upfront mortgage insurance premium (UFMIP).
There are rules that permit third parties to make an “outright gift” of down payment money to a borrower. HUD 4155.1 Chapter Five, Section B says the following about such programs:
“An outright gift of the cash investment is acceptable if the donor is
- the borrower’s relative
- the borrower’s employer or labor union
- a close friend with a clearly defined and documented interest in the borrower
- a charitable organization
- a governmental agency or public entity that has a program providing home ownership assistance to low- and moderate-income families, or first-time homebuyers.”
For more information on the rules for such programs, contact the FHA directly at 1-800 CALL FHA.
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