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What Is An FHA Loan Down Payment?

What is an FHA loan down payment?

What is an FHA loan down payment? Most people in the house hunting process are familiar or will become familiar with down payments-the money required from the borrower up front which is paid against the principal of the loan.

There’s a long-standing notion about the nature of down payments; if a borrower invests a large an amount money up front, they have a bigger stake in making on-time payments and remaining in good standing on the mortgage loan. But that idea isn’t addressed in the FHA loan rulebook. What is discussed is the nature of the minimum required cash investment or down payment on an FHA mortgage.

All FHA loans for new purchases will require a minimum FHA loan down payment of 3.5% of the adjusted value of the home. Naturally, the actual amount you pay up front can vary but one thing that’s important to remember is that the borrower is free to make a larger down payment.

In some cases where credit score issues are present, a larger FHA loan down payment may be required as a condition of loan approval. FHA loan standards require a 10% down payment when the borrower’s FICO scores are between 500 and 579. Lender standards may also apply above and beyond this minimum.

FHA down payment funds must come from approved sources. You can’t use payday loans or other “non-collateralized” loans such as credit card cash advances to source your down payment money. If some or all of your downpayment funds come as a gift or a grant, these sources must be approved by the lender and meet FHA requirements.

Down payment money can’t come from anyone who has a financial stake in the outcome of the transaction. So there can be no assistance from the seller, lender, etc. FHA loan rules state that the down payment money you provide must be verified by the lender regardless of the source.

If you provide 100% of your down payment funds, the lender will still require the money to come from approved sources such as cash saved at home, savings plans, cashed-in investments, checking account funds, etc.

Down payment funds are not the same as other closing costs. Your closing costs outside the down payment are considered separate expenses and cannot be counted as part of your money down. That means appraisal fees, compliance inspection fees, insurance, etc. cannot count towards your down payment.

Joe Wallace - Staff Writer

By Joe Wallace

June 30, 2017

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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FHANewsBlog.com was launched in 2010 by seasoned mortgage professionals wanting to educate homebuyers about the guidelines for FHA insured mortgage loans. Popular FHA topics include credit requirements, FHA loan limits, mortgage insurance premiums, closing costs and many more. The authors have written thousands of blogs specific to FHA mortgages and the site has substantially increased readership over the years and has become known for its “FHA News and Views”.

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