FHA home loans come with a maximum financing limit–a borrower is required to pay a certain percentage up front as a down payment. There is no such thing as a zero-downpayment FHA home loan, but the amount of the minimum is much lower than conventional loans in typical cases.
FHA loan rules specify a minimum 3.5% down payment, but in some cases that down payment may be higher depending on circumstances. What kind of circumstances?
One is a situation where the borrower’s FICO scores or other financial qualifications are borderline. FHA minimum FICO standards for maximum financing and to be eligible for the 3.5% down payment start at 580 and above. Your lender may actually have higher FICO requirements than 580 and that is permitted under FHA loan rules.
Borrowers with FICO scores below 580 but higher than 500 would be required to, at a minimum, put down 10% instead of 3.5%.
In cases where the home loan transaction is happening between certain family members, friends, business associates, etc. a borrower may be required to make a 15% down payment. In some cases that 15% requirement is waived (and the minimum down payment would apply) if the sale is from one family member to another and the home is not an investment property.
Other exceptions may apply, speak to your loan officer about how to proceed investigating a possible exception.
FHA loan down payment rules include a requirement that the down payment funds come from acceptable sources. You can’t make a down payment using a credit card cash advance, for example, or any other type of personal loan that is not backed by collateral. That means you can’t use a payday loan or similar products as a source of down payment money.
The lender is required to investigate the sources of all down payment money, so it’s not a simple matter of paying up and moving on–speak to your loan officer about FHA loan down payment issues if you have concerns.
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