A reader asks, “Chapter 7 bankruptcy discharged in Oct 2010. Credit score now around 670. The hardest thing I am finding is the ability to save for a down payment. What would be a minimum down payment that I would be required to have before I could get an FHA loan? Thanks.”
Unlike VA mortgage loans, FHA home loans feature a minimum down payment, also known as a minimum cash investment. The down payment must not only be a certain percentage of the loan amount, but it is also required to come from approved sources that can be verified. Borrowers cannot, for example, take out a cash advance on a credit card or any other form of unsecured loan for the down payment.
FHA loan rules describe the minimum down payment requirements in HUD 4155.1 Chapter Five, Section B:
“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.”
FHA loan rules also add the following: “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.”
The borrower can source a down payment from a variety of personal savings, investments, stock or savings bonds. Personal checking or savings funds are also permitted, as well as the proceeds from the sale of personal property, commissions from sale, trade equity or related acceptable sources.
It’s not possible to answer the reader question specifically since there is no set dollar amount for a minimum down payment for an FHA mortgage. Much depends on the appraisal on the property or the sale price. Borrowers should research average sales prices in their area to get an understanding of how much may be required on a typical home sale with a 3.5% down payment.
Do you have questions about FHA home loans? Ask us in the comments section.